Wednesday, March 16, 2011

The Specialist's Scam

Well as I said in yesterday's update don't panic. Yesterday AA along with the entire market gapped down at the open for no market related reasons. Uncertainity in Japan had nothing to do with it either. It was the excuse.

Look at the chart of yesterdays' action in the one minute time frame. There was the big gap down at the open followed by the 45 degree increase into the close. Why, what happened? Did something change during the trading session that fundamentally increase the value of Alcoa and it's stock? Nope! So, then why the sudden gap down and rebound?

Since you asked I will tell you. Alcoa trades on the Dow Jones which means that it has an assigned specialist. The specialist is the guy on the other side of the trade. The thief on the trading floor. It is his job to buy with his own money if necessary all the shares of Alcoa at the market at anytime there is an offer. Also he must sell the correct number of shares at the market to anyone who want to buy. So, far so good, but keep in mind he is the market.

The specialist on the floor of the NYSE has complete control over and knowledge of all data for that particular stock. Literary he has the book on that stock. So, the specialist for Alcoa can change the price at will and can see all the stops, every open order, every piece of data on Alcoa that there is. Meanwhile we are dark. No one, not even the IRS is not allowed to see the specialist's records. He doesn't have to explain himself to anyone for any reason. He is only constrained by the degree to which he is not perceived. So, events like a disaster even though it has no bearing on the stock or the company makes a great elephant ear to hide behind.

This is what happened yesterday morning in stocks all over the market. The specialist turned the dial and gapped the shares down at the open and that is what caused the panic selling at the open. And then because all of the short term sellers had sold, there were no sellers remaining and the specialist bought up as many shares as he wanted. Then he steadily turned the dial up and brought in buyers. Then at the very top of the market for the day which was $16.13 he sold. Finally the shares settled in at $16.04. That is not bad work if you can find it.

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