Minor Movements In Prices
Within the major movements of stock prices, there always are several
minor movements, which are caused by various influences. One of the
important causes is the technical condition of the market. Another cause
might be called a psychological one. When stocks are moving up steadily
in a bull market, people closely connected with the market expect a
reaction and watch for it. The newspapers predict it. Consequently,
ther
is sufficient let-up in buying to allow the pressure of selling by
the bears to bring it about. However, the desire to buy during reactions
is so general, many people rush in to buy and this buying, in addition
to the covering by the shorts, puts the market up again; and if
conditions are favorable for a bull market, prices will go up much
higher than they were before.
In like manner, we have rallies in bear markets. Of course the
professional bears sell during these rallies, with the expectation of
buying later at a cheaper price.
These minor price changes mean more to the majority of traders than the
major movements. The major movements are so slow that people get out of
patience, and yet those who are guided only by the major movements are
operating on a much safer basis. We believe that a greater amount of
money can be made, with a minimum risk, by being guided principally by
the major movements, while taking advantage of the minor movements in a
minor way. However, stocks do not move uniformly and there frequently is
an opportunity to buy some particular stock at a bargain when nearly all
stocks are selling too high. We try to pick out these opportunities for
our clients.
Reports of earnings by various companies influence stock prices, as does
also the paying of extra dividends or the passing up of dividends. A
peculiar psychological influence is noticed when a company declares an
extra dividend. The price of the stock usually goes up, while as a
matter of fact the intrinsic value of the stock is decreased by the
amount of this dividend; and sometimes it is advisable to sell a stock
shortly after an advance in its dividend rate.