"Who read the Australian Financial Review Thursday morning last week? The newspaper carried a story suggesting that MIM was the subject of a takeover. This news trading opportunity was delivered to everybody who picked up the paper before 10 am.
Every takeover tends to follow the same dance steps. Some may speed up the tempo, but generally we see the same sequence of events. This type of opportunity highlights two issues. The first is our ability to learn from the past and apply these lessons to develop profitable trading strategies for the current situation. The second issue is the way that the same knowledge can be used by many different people at the same time so they all make money. The profits from this type of opportunity do not come from knowing things that others do not. A press release in the Financial Review levels the knowledge playing field. Profits come from the way we trade the situation. Our skill determines if we are able to out-trade our competitors.
We start with the dance steps. The first takeover offer price is rarely the same as the final takeover offer price. The bidder is often forced to lift the price in another 2 to 3 steps before the deal is sealed. This is even more complicated if a second bidder emerges. When the target company is large there is an increased probability of future higher bids. This is not always the case with smaller stocks where public interest and trading turnovers are low.
The initial takeover offer may be subject to previous rumor in the market, and this tends to lift prices in anticipation of the formal bid from the predator. Once the first formal offer is made there is usually a lot of trading at around the offer price. Rather than wait for the offer to be completed, quite a few investors sell shares at around the offer price. Some of them worry that the takeover might not take place.
Rumor drives the next step, and prices drift higher in anticipation of a revised offer. Once made, prices jump to the new offer price and the steps are repeated. Some existing shareholders sell out. Some of the new shareholders who bought shares after the first offer bailout when the second offer is announced and they collect a short term profit. traders speculate on the probability of a series of higher offers. They do not rely on an established trend or a series of technical indicators. Their trades are based on an anticipated pattern of news events.
The thousands of readers of the Financial Review were all given this information prior to the open of trade so no access to specialist news services is required to make this trade successful. For this trade to remain open we need to see a continued high volume of trading and a continuation of the price rise. This doesn't necessarily mean that the second day of trading must open higher than the first day's high. There are other traders who will also try to take profits from this rise and it may lead to a slightly lower open."
so dyor as i'm only a mug punter who topped up at 24c when the downrampers were predicting anything from 10c to zero.
CNP Price at posting:
0.0¢ Sentiment: ST Buy Disclosure: Held
