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To: UnBelievable who wrote (28439)10/15/2000 7:30:13 PM
From: GraceZ  Read Replies (1) of 436258
 
I do have a hard time believing that "professional money managers" decide to buy a stock because the small investor is selling it,

I would never say that either. I said that the money flow was frequently positive as the share price declined because of the small lots being net out and the blocks net in. There is no cause and effect relationship. The fact that they often buy into public dumping has to do with public sentiment. Public sentiment follows price, as the price rises the sentiment rises with it and the public bids it up even more. As the price breaks it takes sentiment down with it, the public dumps even harder as the price bottoms. The professional, hopefully, makes buying decisions based on fundamentals so they are found picking up stocks as the public sells because the valuation becomes attractive again. Of course if the price becomes even more "attractive" they start dumping as well.

Of course, if the pros were always right and the public always wrong we wouldn't have so many negative mutual fund returns this year or quite so many rich little old ladies now would we?

I must disagree when you state that a MM is indifferent to the price movement

They may in fact not be indifferent (as you point with the MOC orders), yet there is little they can do to control where price goes in a market that is continuous. Think of how many firms are involved with making a market in any given NASDAQ stock. Even if you consider that the majority of the shares are traded by the three largest firms, you'd have to have one hell of a conspiracy theory going to think that they can fix the price or even the direction of any one issue given how fast the market moves and each MM is covering dozens of issues. Then think of the large number of trades that are now executed on ECNs with no human intervention. The only time the MM sets the direction of the price is a situation where there is no one on the other side of a trade or the booked orders are too far apart.

It is my understanding that MOC orders are a match up of a buyer and seller that both agree to the closing price and the MM profit is suppose to come from the b/a spread not from betting against the institutional client. OTOH I do have a MM friend that has complained to me several times of having these kinds of trades go against the firm, so I'd have to assume if they can go against them they can go for them as well.
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