Thursday, June 16, 2005


Cramer booyaheads 0. NYSE specialist 1

If you saw Mad Money yesterday, you would have known that Cramer spent the first segment of the show crowing about Kohls. This is what would have happened if you bought at the open. For those of you who don't know how the NYSE works, let me give you a refresher course. For each stock on the NYSE there is a specialist whose job is to ensure an "orderly" market for the stock. This means that the specialist is the buyer and seller of last resort. By moving the price and trading from his own account, he ensures that the stock moves in an orderly manner and that all market orders are more or less instantaneously filled.

If there is an excess of market orders to buy, the specialist is obliged to sell stock. If he doesn't have enough stock to sell, he must borrow stock (i.e. short the stock). Now, let me ask you a question. If an influx of buy orders forces a specialist to go short a stock, what do you expect to happen? Well, the answer should be obvious. The specialist will do two things: one, he will raise the bid for the stock to ensure it opens well above the previous day's close; and two, he will short even more stock at the open to ensure the price is driven down so that he can cover for a profit. And that's what happened today.

Does this have anything to do with how everyone was downgrading the stock? Or is this just a coincidence
Great records! I am also a stock trader. Directed to your blog from Seeking Alpha(Blog).
Great insight and analysis. Love to see more of this stuff.

How do you know this is what happened? That it is due to MM. Is there evidence of this? I am really curious about those bastards.
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