WHY, WHY, WHY?
How about simple economics??
NYSE, NASDAQ, etc., are the most pure forms of a "market" that exist on the planet. Put simply, when there is more demand than supply price rises and conversely the opposite.
Look at the VOLUME! 250k-->1 million, 2 million, 3 million, 1 million, 1 million (opps, is that 1 too many million, no matter), 500k.
Price is broadly mirroring volume.
Now, add in some homework to the basic theories above.
This stock is held in strong and experienced hands (I must emphasize experience). What does this mean? TDFX is just a few months from its IPO, consequently most shares are held by institutions such as Venture Capitalist and those with the capital and connections to be in on Private Placements.
Translation, pre-IPO prices, pennies to a $1!!!! Only recently have these holders been able to cash in their shares due to SEC rules. Just as recently, there has been a Secondary Offering (or whatever one chooses to call it) going not to the public, but to more strong hands (but at a much higher entry point). These guys aren't SELLING at $35!!! or $40 for that matter.
Now, let's consider the above by putting ourselves in the above positions. I'm holding oh....let us say 100,000-1,000,000 shares (or better) which I acquired for roughly $1.
At IPO, the price is $11, whoopee a ten bagger, but due to SEC regulations I can't sell them (even if I want to); the market (the little guys with not enough capital or connections for pre-IPO prices, but who are in the know) takes the price to roughly $16 in short order, but again I can't sell my shares.
A few months pass and the price rises to roughly $25, and guess what? I finally get the OK and can sell my shares, but low and behold there's a Secondary offering of roughly a couple million shares or so (at the moment we forget the actual number--no matter). Great, the Secondary SOLIDIFIES the $25 bucks, but now there's millions more shares out there just when I want to dump my holdings and cash in on my 20 bagger.
>>Isn't it interesting how these two events coincide one another??<<
But no problem. Why, because I've been technically educated, trained, experienced and then I got my MBA and actually I had no intention, previously, of selling my shares. Why?? Because this marvelous little company that I own a very large share of, in a few weeks, will be introducing an incredible little product that buyers will be clamoring for and will send earnings skyward in multiples. So I hold. So do virtually all of my contemporaries.
WE---ARE---THE---MARKET---by virtue of the laws of supply and demand.
So, what do my contemporaries and I (from this point onward I'll use the term WE) do in order to support the present price level until earnings release. HOLD. We own most of the shares. All those little guys who got in at IPO prices ($11-$16) don't really matter. Together they might, but they're not together. They're little guys individually holding 1,000 share lots (and less). The best they can do is support my price. If they get a little skittish, no matter, I'll go in and pick up their shares and support MY price.
>>Does this explain why there was little volume increase post-Secondary?<<
Maybe even, a week or so before earnings, we'll go in and push the price a little in order to build momentum. 25k, 50k, 100k will do it for sure. Why not, the daily volume is only 250k. At this point the price is about $30, daily volume has risen to 450k.
Earnings time. We've been waiting for this. It's time to take some profit from my 30 bagger. But wait--problem, if we drop all our shares on the market, no matter how strong the demand our shares can meet it and the prices would drop. Solution, NO DUMPING!! We'll let shares go in dribs and drabs and SELL INTO DEMAND. For us that means (at first) roughly 50k blocks to meet the surge in demand. Wow, $30-$35, do you believe we were able to let go of 3 million, Great.
>>Does this outline whey TDFX never got to $40?<<
Now, at the slightest sign of price weakness--as a consequence of our steady supply of shares to the market, we need to gradually cut back on the block size until demand peters out, this way we can get rid of another 2 million or so above $30!
5-6 million shares above $30 in about a week's time, not bad. 5 million at average of $30 minus costs of 5 million at $1 = $145,000,000. And WE still have half (or better) of our holdings. This is what they pay us for! We play with MEGAPROFIT.
Now, lets shut down and watch the little guys with their newly purchased 1,000 share lots. Only 500k volume today and the share price is down to $31. Now what will those little guys do with their 1,000 share lots, $3 losses and demand dried up??? Sell did you say, I think so! Who will buy do you say, I (or should it be WE).
A little at $28, $27, $26 and a lot at $25, $26, $27, $28, now lets watch the little guys.
(This last line may not turn out to be as accurate as I've made it, but the above was intended to make a broad, simple point. I've had it with the why, why, whys. Let's start, thinking, thinking.)
Coltrane's First Rule of Trading (learned the hard way):
"Know your Stock", its trading pattern. TDFX is an IPO, it has no pattern as yet. Then know your HOLDERS!
Now, I shall return to the land of the lurkers from which I've sprung. |
