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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: E. Graphs who wrote (6504)	8/2/2001 6:02:07 PM
From: GraceZ	Read Replies (3) \| Respond to of 74559

Where would mutual funds get the money to run the market up? They're already holding bags of overvalued stocks that are down big for the year. You can buy a lot of tech wrecks when you sell your big safe listed stocks that are up or flat this year. How much AVNX can you buy with 100,000 shares of MSFT sold at 70? How about we cash in those shares in GE or PRX? I know the liquidity theory and why trimtabs keeps track of inflows to mutual funds, in flows to mutual funds are not the only source of liquidity in the market nor are the mutual funds the only type of institutional investor. Hedge funds are playing a larger and larger role after this downturn. The Fed is getting into bigger and bigger air drops and this is putting a rising floor of money into the market. The truth is that money flow can be negative and stocks can move up and visa versa. What the institutional buying does is soak up shares so there is less supply at the margin. This has the effect of pushing on prices just enough to have the share price rise almost imperceptively at first. It's going up, yet there is no really good reason for it to, or it might even be slowly descending. This slow rise or slow descend causes the short sellers to decide to cover and that reduces the supply even further. But still the stock doesn't move up much, not until there is some kind of good news cover that causes marginal demand to rise. Even so, an instantaneous rise in marginal demand will cause the stock to rise and that will instantly bring in supply which will make the price drop back down. Small investors see this rise and swift drop as evidence that they are in fact holding a POS stock and they should exit on the next rally. They book above to sell. It is this booked supply above which acts like a magnet on the price. If the price rises too far, too fast the institutional investors will dump, if it rises the way I just described than you have a bullish scenario. It is the small booked orders above which provide persistence to the upside and the small market orders that move the price up, but it is the money flow from the institutions that provides the foundation. That institutional money doesn't have to be new money, that money could be coming out of the NYSE stocks that are still rising or that have already peaked. The home builders, banks, REITs, health care, drugs, etc. that are up significantly over the last year.....it could be coming out of DONUTS! How's that.....Donuts to dollars. -g-