I found this on RB I think it answers my question>
There is nothing magical about the $3.50/share. While it is try that market psychology can substantially alter the price of a traded security, and that resistance levels do exist for many (DDEQs happens to be between 3.50-4.00 IMO), I believe what happened today is exactly what has been described in several earlier posts.
The demand for DDEQ today was obviously impressive, newcomers to the scene (including many daytraders) were likely caught up with the rapid price escalation they witnessed and wanted to be a part of it. However, once the MMs ran short of shares (which is only going to become an even greater problem as we near IPO and launch time!!!), they needed to lower their ask to bid spread to give the impression (false) that we were reaching a limit in terms of the price hike for the day. The "Weak Investors" observing this scenario start to become a little nervous as it appears the price incline is slowing down. What is in fact happening, is the beginning of the "Shake out" by the MMs. Since they must now cover their previous shares that they shorted (borrowed from someone else in order to sell to another interested party) as their stash runs dry, they must now cover their short. Now if you had to cover a short (ie. pay back the investor who loaned you the shares in the first place), would you want to buy back those shares (which you will flip over to the lender) at a low price or a high price. Of course, a low price. As the ask starts dropping, the weak investors begin to be shaken for fear that the stock is on the verge of a trend reversal... They sell, which other weak investors witness, and they in turn, sell as well. This leads to a vicious self-propogating cycle that draws with it larger and larger crowds into selling their positions (for fear of losing that profit they once had).
The Saint |
