re: macs ol' cobber -and learners!
Thanks John, Very interesting reading. Will study properly when I get back with more than 5 minutes to scratch myself!! Cheers Rak Phase One – Accumulation / Basing
During the accumulation or basing phase, shares of a stock are transferred from weak hands to strong hands. This phase usually happens after a long decline or a lengthy advance. The stock trades in a very narrow range and appears to be dead money to the average investor.
They are correct to a certain degree, because - during this phase - the forces of supply and demand are roughly equal. Although there is no big buying excitement, there are no waves of sellers either. During this time, the average investor often sells out of fear that the stock will drop further or he/she sells because of impatience.
The stock market discounts the future. The market does not move based on today’s news, but on perceptions on what the future of the economy and business prospects will be. This is true with individual stocks also. The smart money, insiders and institutions, are the first to realize that a company’s prospects are brightening. Towards the end of the basing phase they begin to heavily accumulate the company’s stock. Often, although not always, the stock’s trading volume will pick up towards the end of this phase and large 'big block' purchases will take place.
A trading range defines the price action in a base. Stocks that are basing bounce between a specific high and low price zone. Sellers often wait for the stock to go to the top of its range before they sell. By doing this they create an area of resistance, a price level the stock cannot trade through. When it reaches resistance it repeatedly falls back down. The more often it does this, the stronger the resistance. The basing phase lasts as long as resistance holds and the stock remains stuck in its trading range. As a general rule the longer this phase lasts the longer the second phase will last.
Phase Two – Mark Up / Rising Prices
If the smart money continues to accumulate shares they will eventually run out of sellers to buy from. At this point, resistance gets taken out and the stock price clears its base. Bulls get the upper hand with the stock, not because there are suddenly more buyers interested in the stock, but because the sellers have disappeared.
Often - at the moment the stock breaks out of its basing phase - the fundamentals of a company are poor. However, even though this is the best time to buy a stock most analysts will be down on the stock and consequently your stockbroker will probably try to talk you out of buying.
But remember, the smart money buyers and stock prices themselves, are anticipating a positive future. You are always better off following their lead than the opinions of Wall Street analysts and most stockbrokers.
As demand outpaces supply, institutions and insiders will compete with one another to buy the stock. Their psychology begins to change. During the basing phase they bought on dips, now they do not mind buying as the stock price advances.
As the advance continues, eventually word gets out that the fundamentals of the company are improving or some positive development concerning the company becomes common knowledge. As this happens, the average investor and the general public becomes interested in the stock and begin to buy too. Analysts begin to put the stock on their recommendation lists.
OPC Price at posting:
0.0¢ Sentiment: Buy Disclosure: Not Held
