The crowd kind of pushes commercials into buying low (when people panic). So, at what proves to be the low of the move, they are loaded with inventory. They will be selling this inventory on the way up, to satisfy the (growing) demand. "Growing" - because as the rally proceeds, people feel that it is "safer" to get back into the markets (g).
Towards what will eventually prove to be the top of the move, the commercials will run out of inventory, and the only way they will be able to sell to those who want to buy is by naked shorting. Specialists and market makers don't have to "borrow" stocks to short - they just short them naked, and worry about it later.
Of course, at both price extremes - low and high - they will be in the red, and, in order to decrease their risk, they will accelerate the decline of prices near the low - and vice versa, near the top - when they take risk by going short - they'll demand increasingly higher prices... again, to compensate themselves for the risk they are taking by shorting the rally. They have deep pockets, and eventually - usually - they end up being right, and the crowd - wrong. In other words, near what looks like a likely extreme in prices it pays to watch the positioning by the commercials. |
