i'm going to repost here something written by a poster named 'swap', one of the best-written pieces i've seen in a while (there is still masses of great quality material on HC every day, i just loved this particular post so much)
i post it here seperately as his/her comments were buried in commentary about Centro so unless you follow that stock closely you likely missed it:
We've got a mini snowball happening today. For those of you who have been around the good ship Centro for a while, you'll know the story because it has happened over and over again for the past year. You'll also know that it'll pass soon enough.
Here's how it plays out:
We have a couple of good days and people feel better about the stock. They realise that there is still a safety margin between SP and NTA and the fundamentals look good, with the chance of a dividend in the next half. They see other positive comments and a rising SP. They also realise that an announcement is due soon and historically, if the news is good (i.e. CER ain't bust) then the SP will go up. They jump on board for the ride.
Then we have a down day. It's usually triggered by bad news coming out of the US or a general malaise here at home. Remember too that CER still forms part of the ASX200 so when funds sell the components of the index, they also put downward pressure on CER.
Anyway, CER starts to drop slowly. Retail speculators on margin, T+x, or those trading via highly leveraged derivatives (e.g. CFDs) see paper losses building and stop-losses trigger. Everyone assumes someone knows something (which they don't) so they sell... and the snowball starts to gain momentum. Algorithmic traders (bots) assist the falling market by selling into the bid line. As the SP drops, more pain is felt, stop-losses trigger, retail speculators bail and it becomes almost a self-fulfilling prophecy. The huge institutional buy orders, that have been sitting on the sidelines, get filled.
Every time this behaviour happens in Centro, we hear the 'someone knows something' line. Well it's been going on for at least a year, the company ain't bust and it's quite apparent from the SP gyrations that nobody actually knows anything... aside from what is announced.
In the extreme case, this investment style is known as the "Buy High and Sell Low approach". If you are a practitioner, you'd better make sure you have a lot of disposable income. In most cases this is known as Speculators Regret: "I should have bought more when the price dropped.. but I was scared someone knew something" or "I panicked and sold too early. If I'd have waited, I would have made a lot more".
Remember too that the price of CER is being influenced by a comparatively small number of shares changing hands. CER has 2.2bn shares on issue. A volume of 10m shares represents less than 1% of the non-CNP held shares and 0.5% of the shares on issue. If a really big holder 'knew something' they would be dumping tens and tens of millions of CER shares on market just to get out at any cost.
For my 2c worth, if you can't handle the financial or psychological impact of CER falling 1.5c then I'd get out and stay out. Otherwise, this presents a good opportunity to buy more shares off their recent highs... unless of course you know something.
