In classic market making process, you move price up to create a buying opportunity. You create short interest and bank the cash taken in.
When the price reaches a price too high, buyers dried out; and sellers appear. You buy back all the borrowed stock. For the last five years, too much cash is sitting on the side lines; borrowed stock can not be bought back, because of investor confidence and surplus cash positions.
To stay in market making business, the equity stock were suppressed by short interest. You can sense the price ceiling caused by average cost of short interest. Those who did the charting can draw two horizontal lines to predict the trading range. No money to be made in those stocks suppressed by large short interests.
Wall street had always had gloom and doom fear factor to get investors to sell. Eventually, they create a crash when cash ran out at the specialists or market makers; when people dump. However, the strong short interests, also prevented crash, if cash is available to buy back everything.
So, gloom and doom rumors are designed to be short lived. So, that cash is not run out, and some short interest will remain to be averaged up later in the boom market.
With the gloom and doom comes the 'take out the weak hands'. When the selling stops, we can move on to nice moves again.
Watch out for market makers that pull back to sell borrowed stock; stay away. |
