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Strategies & Market Trends : Analysis Class for Beginners
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To: Arthur Tang who wrote (792)5/14/1998 12:28:00 PM
From: Arthur Tang  Read Replies (1) of 1471
 
Market making revisited for professional market makers.

Market making is all psychology of greed and fear. But that phase is now not applicable, because of the money chasing stocks in this new economy. Fear is used to drive investors to abandon their stocks to take a loss. Today, due to earning power of individuals, they can wait out the market. One to two year wait is not a reason to sell. Besides, given time, companies improve by using computer efficiency to make more money.

When market makers change to a different tune, they can be still very successful. The stocks marketed has to be move very fast to the peak. then pull back to buy back the borrowed stocks at 70% or 90%, even 95% of the peak. Who is selling? Not the investors who lost money. It is the investors who cashed in to take their profits.

Old timer market makers have to learn new tricks. If they try to have a severe correction; their customers all become paupers and left them, not by choice.

Talks of 20% corrections are just a dream nowadays. Hedge funds use plenty of short interests to drive price down; but the short squeeze only move prices even higher. Plenty of cash sitting on the side line to take advantage of the 20% correction. So, who is going to wait until 20% is reached? No one. To get the stock you love, you have to grab it the minute it is available. Who wants to buy borrowed stock cheap, that might pull back for couple of years?

The market making is in a new phase and those in the business better not get themselves into bankruptcy. Avoid borrowing stocks.
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