Sarmad,
I missed this post yesterday. I try to respond, but it's hard to tell who is asking a serious question or not.
"This business of stocks running up to e. Then dropping. Doesn't this depend on buying pressure by new speculators who don't know the edge of the cliff is looming ?"
The phenomenon is one that simply exists in stocks that are positioned well for hypergrowth in their businesses. Eventually, the company blows up after a disappointment, and usually never recovers. Sometimes, but rarely the company grows into its market cap, ala CSCO, AOL or McCaw Cellular. NSCP is one that recovered, although via a buyout.
You ask why it happens and your guess is as good as mine, but it seems obvious to me that there is simply heightened speculation prior to big announcements, and when combined that with the post e sell offs that lead to a perception of low relative prices, you end up with more buyers than sellers. The move up attracts day traders and momentum players nowadays. You ask why they keep buying until they run off the cliff, and that is a technique that traders use: no selling after a break out, so the buying continues until the momentum plays out, and then you get the same phenomenon applied in reverse.
This is the only explanation I have. Feel free to reject it out of hand. |
