So HFT bots are just doing it for the love of the game then? Good to know!
Shorts need to close at some point? Not necessarily, because unlike, say, commodity futures contracts with a defined expiry date, shares just go on forever you know? And forever is quite a long time. Which is why we see far less crowd panicking short squeezes in share trading than in commodity futures and options markets. When the clock is relentlessly ticking, and if you don't close your position by tomorrow you're going to [metaphorically] get a truck load of wheat dumped on your front lawn, it tends to galvanise you into action.
Anyway, when I was replying to Spockie about "supply" we were actually using the word in a different but no less valid sense to your usage. To clarify I'll rename what we are talking about "Access". Specifically Access to shares for the purpose of shorting. This is not linked to price or obtaining best price in any way whatever. It's about estimating what Access capacity remains for shorters to borrow shares. For example, if we estimate that 25%* of STX shares are in the hands of Super Funds, Index Funds and the Trust Funds of big banks who are all 100%* willing to lend all those shares out for shorting, and we know that Short Interest is at 10.5%*, then we can deduce that shorters are not even half way to their theoretical capacity yet and there is plenty of Supply, sorry Access, left for them to gobble up before it becomes constraining.
I expect that in times long past we would also have had to factor in a frictional component into our simple estimate. In former times, I'm sure 'desks' would have had to know who to contact at Australian Super, Jim in charge of share lending, or Jenny at JP Morgan and it would have been more about personal relationships and who you knew and who you didn't. But in these interconnected times I'm thinking any Institutional shorter probably has virtually unfettered access to every potential lender, so that friction has probably effectively disappeared.
This next bit illuminates the situation of price divergence from fair value that 618 and Wot, both far smarter than I, have been describing for some time now. What does an established shorter do with those new shares? Well, theory [and Hingdog and WC] probably would say that they will try to sell them into the market at the highest price possible, to maximise their eventual gain. But I say that is likely wrong because an already established shorter has no good reason to do that. Selling in at a lower price actually benefits their portfolio more, when taken in entirety. Which is why we are experiencing these relentless down-ticks and increasing divergence from 'fair value'. 618's valuation is both sensible and fair, as are those of most of the professional analysts covering the stock, I reckon.
If good news comes along what would be the shorters' rational response? Well, knowing that there is still a large amount of Access, they probably won't run for the exit. They'll probably just double down and increase their positions, which is again what we observe lately, every time.
Is there some piece of positive news that could destabilise and break this unhealthy downwards progression? Maybe if next week we make the largest discovery in the history of the Perth Basin. But how would we even know that, from one well's results? As Wot says, ahem, quite frequently, probably only a takeover offer will do it - and with multiple parties, too. That's the reality.
Hingdog, the Supply you are talking about I'll differentiate by calling it Availability. What you are talking about is squeezing the last pip out of your buy order by Price Discovery. That's like comparing prices between Woolies and Coles. Most long term retail size holders aren't that interested in obtaining absolute best outcome and are happy just to fill the shopping trolley at the most convenient location.
* All numbers are made up. Not to be used for navigation.
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