What makes price move? Here’s one factor (actually two).

What is it that moves price? Well, there is no “it”, it’s a complex phenomenon. But this post is going to, eventually, get to making at least one point (actually two) about what moves price. I say eventually, because in order to get to that point there are a few other points to be made. Sort of like building a cause, for all the Wyckoff-inclined out there. Oh, and I have few rants to get out of my system too.

OK. I have avoided discussing Facebook & its float. But this post is going to mention FB and the float. It’s unavoidable in this case, So my apologies. How I feel about the FB float and the associated very tedious commentary (yes, commentary – like broadcast sports events come with commentary, so did the FB float; there are a lot of commentators out there clamouring for attention) can be (and were) summed up in one tweet. My frustrations with the FB float commentary spilled over about 3 minutes after the NYSE open on Monday, when I posted this tweet:

FB. Who gives a shit. Move along.

Which should have read, of course:

FB. Who gives a shit? Move along.

The S&P was putting in a base and looking to perform in the green for the day for the first time in, what, two weeks, and the stream was constantly pinging out negative FB commentary instead of paying attention. WTF? Like I said:
FB. Who gives a shit? Move along.
(I warned you there was a rant coming).

Well, I was paying attention, 14 minutes after the opening tweeting this out:

$JPM said to be suspending repurchases (no link, just chatter) and yet the S&P is biddish. Hmmm. #response

(note the #response tag I added – again for all the Wyckoff users out there). The market was not whispering its intentions last night, it was shouting them (to paraphrase Bob Dylan).

OK, rant complete. Moving on to the main point.

There is a guest post on Ritholtz’ blog today:
So, You Think You Really Know What Happened with Facebook’s IPO on Friday?
http://www.ritholtz.com/blog/2012/05/so-you-think-you-really-know-what-happened-with-facebooks-ipo-on-friday/

In it there is a nugget that needs to be noted. It is one of the things that moves price. Knowing this little nugget can (will, if you let it):
a) Save you a lot of money when trading;
&/or b) Make you a lot of money when trading.

Read this (from the article; hey, read the whole article. My bolding and SHOUTING)):

From my perch we had all of our opening orders in on time and notated correctly, as venues like Instinet advised. The stock opened at $42, and quickly started to move higher until we, and others in the same boat as us, realized that we were unsure if our opening orders were in fact executed. WHEN TRADERS LIKE US HAVE THAT KIND OF UNCERTAINTY, OUR INSTINCTS ARE TO FLATTEN OUT IN ORDER TO MITIGATE RISK. THIS IS EXACTLY WHAT HAPPENED as we and other market participants reacted to the NASDAQ-induced uncertainty, and the stock cratered towards the issue price of $38.

The uncertainty surrounding whether our orders were executed correctly at the opening print weighed on us most of the day – until around 2pm for us, and as late as 3pm for other firms. From what I can piece together, anyone who tried to make any changes to orders after 11:05am, those orders were not filled – and that is what you can attribute that second down-leg to. After the stock slowly worked its way back to $42, AS TRADERS REALIZED THAT THE ORDERS THEY HAD ON THE OPEN WEREN’T FILLED, THEY JUST DUMPED EVERYTHING – bringing the stock once again back to the $38 issue price.

A major, hugely important factor that can and does move price is uncertainty, like it says in the quote. That is why markets react to news, announcements, surprises …etc. Sometimes traders don’t get out of positions because they are wrong (or think they are), but because of uncertainty. Its a risk-mitigating strategy (like it says right there in the quote).

And there is more to it than just this. Have a look at what I tweeted out about JPM pulling back on their stock buy-back orders. And then I added: … and yet the S&P is biddish. Hmmm. #response.

JPM pulling back on their stock buy-back orders = not only uncertainty, but straight out less demand in the market. Less buying orders.

JPM’s whale problem has been a huge focus for the market, one of the factors that fingers have pointed to as a reason the market has fallen so heavily over the past weeks …
and yet here was more bad news and the market was nevertheless bid. Note the response to the uncertainty and bad news was buying. Bids.

Hello? Wake-up time! Like I tweeted … #response.

Does this make sense? Hope its been helpful.

——
EDIT: Oh, and I really should add that the JPM hole got dug deeper when the chatter out there was about the loss growing to $5bn, up from $2bn originally, revised to $3bn. Again, bad, bad news and yet the market was responding with bids. To repeat…

Hello? Wake-up time! Like I tweeted … #response.

& Does this make sense? Hope its been helpful.

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