Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: augieboo who wrote (44645)	7/6/2002 12:27:29 PM
From: UnBelievable	Read Replies (1) \| Respond to of 209892

I Don't Think You Would Find They Do Some of them perhaps, but you would find the change in a number of less closely followed stocks which are in the indices to have among the highest gains. This can be seen very clearly in the Dow. A few stocks have had disproportionately large gains and there is no news. This is the case because the cost of increasing the price of a stock is lower if the stock is not heavily traded. The market is efficient even when it is being manipulated. Assume nothing has occurred overnight and that when it opens it has opened at the same price as when it closed. Essentially at that price it is at equilibrium. At that price those who think the price is low have bought and those who think the price is high have sold. For any reason a new buyer or seller appears. A bid or an offer is made. The amount of the change in price which is going to be required to satisfy the needs of the buyer/seller varies based on a number of factors, but one of the most significant is the number of buyers or seller who are in a position to meet the needs of the new participant. This characteristic can be thought of as the liquidity of the stock and it varies from stock to stock and from day to day. It is also non-liner, the cost change per share of stock required to buy 100 shares is not the same as the cost change per share required to buy 1,000,000. In general it is going to become greater as the number of shares wishing to be traded becomes greater. This characteristic, the change in price required to bring forth the buyer or seller of a share of stock, is its price elasticity. In a market the price elasticity of every stock is constantly changing When there are many possible sellers (or buyers) the cost of meeting the additional demand is low. The competition among the possible sellers ensures that the additional price required is low and enables the change in demand is accommodated easily, so a small change in the price is sufficient to meet the need. When there are few possible sellers or (buyers) the cost of meeting the change in demand is going to be greater. The purchase or sell of a few shares of stock is going to produce a much greater change in the price of the stock. All things being equal, a trader or investor prefers to buy or sell in a liquid market in which the price elasticity is high. Someone who wishes to change the price of the stock, because of the effect that such a change is going to have on an index, is looking for stocks where the smallest change in demand is going to produce the largest change in the price of the stock, is going to be prefers a less liquid market where the price elasticity is low. This is the reason that the stocks which are preferred by traders and those preferred by manipulators are not generally the same. This is what has made the Dow the most easily manipulated index. Not only is it not market capitalization weighted (market capitalization is a very significant determinant of price elasticity, the great the market capitalization, in general, the lower the elasticity), but on any given day the numbers of shares available tends to be a lower percent of the total shares outstanding. Significant portions of the float of the Dow components is held by “investors” rather than “traders”. Investors are less price sensitive to short term price changes than traders. When a significant amount of the change in the index is attributable to large changes in the price of a few of its components it is a good sign that, at a minimum, the change is not likely to have “legs”. Investors and traders know this and that is why they are concerned about market depth (a positive price change in an index in which more of the components declined rather than advanced tends to be discounted in importance). TRIN and TICK also provide information useful is judging the strength of changes in the indices for which they are calculated, in particular when they are both used, and divergences from their normal relationship can be noted. When the extent of the change in an index which can be attributable to a small numbers of its components, and when there is no fundamental explanation for the unusual change in the component prices, it is a good sign of manipulation.