Thursday, September 28, 2006

Playing With A Top

Not the kids toy that you spin across the floor, the specialist's toy that they spin on the media.

It is at times like this that I miss Richard Ney, the author of a best selling book, The Wall Street Jungle, and many following tomes. Mr Ney had both a sharp wit and an insightful view of what he called "merchandising operations" by the specialists on the floor of the New York Stock Exchange, (NYSE).

As we play around with new highs and round numbers, Mr. Ney would have been watching the volume moves in the few key stocks of the Dow Jones Industrials. His primary argument was that while exchange spokesmen will say "it takes someone selling their stock and someone moving their stock to make a market," in reality it may be someone selling short. M.r Ney pointed out that frequently that someone selling short was a market making specialist.

Mr Ney was not against short selling - he knew its value to markets. He was against the hidden actions of specialists that have enormous power to set the price of any issue. His contention was that they used the emotional greed and fear generated by price moves to move their merchandise in a profitable fashion.

Regarding price and volume, he analyzed it far differently then you will see in the financial press. The NYSE will provide press releases during and after the day highlighting how new highs were accompanied by huge volume. The financial media will repeat this "news" with the implication that volume drove the price higher.

Observation will show what Mr. Ney continually pointed out, prices are moved on low volume - they reach extremes on high volume. He presented evidence that at the lows the specialists and market insiders were buying strongly as the public sells in panics. He then would follow the progression as the prices were moved up on lower volume to an emotional trigger point where high volume was once again used for those insiders to first sell the stock they had purchased, and then sell much more stock short into that topping volume. The prices would then be dropped again on low volume to where the shorts could be profitably covered and long positions re-established.

Richard Ney's books give far more depth and insight than I can apply to his well substantiated theories. That is one of the reason's I miss him today.

I also miss his elegant presentations of reality, his obvious concern for the truth, and many other reasons. You should miss him because he would have written this journal article much better than myself.

Find one of his books in a used book store - and read it.



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