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Strategies & Market Trends : Playing the QQQQ with Terry and friends.
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To: Slagle who wrote (444)5/26/2005 11:09:52 AM
From: Kevin  Read Replies (2) of 4814
 
Slagle-
I would agree with your opinion that the "big guys" can step in and influence the direction of a stock (especially small and mid caps) in the short term, with their large block buying/selling, however this is not a stock...this is an ETF. It is directly pegged to the NDX (NASDAQ 100 Index) and the ETF is quoted at approximately 1/40th of the cash index. Not sure if you are familiar with how the NDX is calculated, but this is a modified capitalization weighted index of the 100 largest NASDAQ stocks. With that said, it is extremely difficult, if not impossible, to manipulate an ETF that has such a large market cap. Mathematically, you would need the "big boys" to simultaneously buy or sell 10s of millions of shares of the top 15-20 companies in the NDX in order to accomplish what you are suggesting (which in turn would cost billions of dollars).

The only time I've seen such 'coordination' is when there is a change in constituents of the cash index. That's when institutional investors (mutual funds are great examples) who manage portfolios that mimic the index will sell the stock leaving the index and buy the stock being introduced to the index. But even then, the market effect is really only seen in those specific stocks, and really doesn't budge the overall cash index.

The only other time I've seen such an event is during index arb, where the index futures are mis-priced compared to the cash index. But with this, the "big boys" aren't looking to make a stock "go any way they want", rather they are taking advantage of a short-term anomoly in the market place.

-K
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