Bob,
Sometimes when a fund wants to buy a block of a stock, they may find a similar sized block available from a 'block house'. But sometimes no such block is available... like when other institutions also believe that a stock is about to rally, and they just don't want to sell. Then the buyer or his block house as middle-man puts out the block request to one of the MMs. There will be a price negotiated. Then the MM does the magic of getting us 'little guys' to give up at a low price. Once the price starts to rise, us 'little guys' tend to hold on - hoping for the big run that we bought in for.
Yes... the MMs will do their best to hold the price down without collapsing the market, until the block is filled. They can't always do it. Some of the 'tools' they use are the moving averages. Like LGND this last week, it has been hovering just below the 200 dma. There are many traders who won't touch a stock trading below the 200 dma. There are others who will short the stock as it rises up to the 200 dma from below. That adds stock to the block under accumulation. In the case of LGND, that is why I have been so interested in its price action the last few days. On 5-5-98 it closed below the 200 dma for the 1st time since 2-12-98, when it rallied and closed above the 200 dma. If LGND was to be seriously weak, it could have traded sharply lower on 5-6-98, say down to 13, at the -14% band. But it didn't. In fact, the volume slowed and it closed unchanged at 13 7/8, after trading slightly lower - to 13 11/16. It then came back up to 14 1/4 at the 200 dma, giving traders a chance to get short on 5-8 and 5-11. So then the stage was set for a big down move on 5-12 and 5-13. Again, when the opportunity for a push downward came, buyers came in to hold it just below the 200 dma.
Finally, today we saw the big blocks cross. Until then, it was simply an idea. But when the blocks crossed, it explained the behavior over the last several days. Considering what we know of about the fundamentals, and the imminent 'good news' events potential, it is difficult to believe those blocks were accumulated on the short side for a fund that can short stocks. I believe those blocks were put together for a fund related to the recent 'New Buy' from an analyst - I forget who just now. Also there have been other analysts making friendly comments about LGND in the last week. LGND may be under accumulation by funds.
One detail to note. This morning, the volume on LGND was extremely light for the first 4 hours. That is often a clue that a block is under accumulation - and near its end. Like a vacuum, it has sucked up all available float for a short time. If it were simply a block crossing from one fund to another, the day's volume would have been normal, with the block simply adding to it.
If all this is correct, then look for a strong move up to begin very soon. If there is disappointing news, the fund buyer could have 'buyer's remorse' just like any of us, and blow-out the block quickly. But anybody spending 2 or 3 Million dollars, will probably have done some due diligence to see a pot of gold in 12 to 18 months.
There are programs that detect this type of block accumulation - detecting disturbances in the normal order flow. I don't have any software - too expensive. Just another advantage for the big-time pros.
Let's hope this is correct. Like Microsoft, I don't give guarantees. There may be bugs.
It is now 16:47 ET. No earnings flag on LGND yet. Should be any minute.
Good luck,
Herbert |
