Careful: Thin Trading

By Rev Shark
RealMoney.com Contributor
12/21/2006 8:16 AM EST
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The woods are lovely, dark and deep.
But I have promises to keep,
And miles to go before I sleep
  

--Robert Frost

The conclusion of the year always produces an odd mix of pressures. Many market players are under great pressure to add on some additional gains, position their portfolios for the final accounting and conclude the year on a positive note. But for many others, especially for those who have done well, the year is essentially over, and the primary goal it to make sure nothing messes up what has been done in the 11.75 months that have preceded.

For the market, that means we have pockets of listless, random action interspersed with aggressive attempts to rack up some quick gains. The thin market, the slowing news flow and the holiday mood all combine to keep things random and more tricky than usual.

One thing that often occurs in thin trading is sudden spikes in either direction. Many market participants are sitting idly, without any strong market bias and waiting for a move to develop. Once they see the stirrings of action, they jump in and drive it further, and that attracts more "trend followers" who simply want some quick profits.

Both the overall market and individual stocks are subject to this condition during the holidays. Generally it's the smaller-caps that are more active, but this year seems a bit different in that regard with big-caps being the primary leaders and smaller stocks showing little life.

The thin trading also results in traders who target highly shorted stocks for squeezes. A prime example is Mamma Com (MAMA - commentary - Cramer's Take - Rating), which had some minor news recently but has been driven straight up for no reason other than the fact that there are shorts who are trapped and pushing it higher as they are squeezed.

So be careful as we wind up the year. The trading can be fun and profitable, but it can also be frustrating and dangerous. Play small, be quick and make sure you have your holiday shopping finished or it won't matter how much money you make.

We have a slightly positive open shaping up. Overseas markets were mostly down overnight. There isn't much news flow, and market players are looking to the final GDP for the third quarter and weekly unemployment as possible catalysts. Oil data are out at 10 a.m. EST and should be of interest as well.

At the time of publication, De Porre was short MAMA, although holdings can change at any time.

Rev went short MAMA

to each his own......mama will pullback eventually but why fight momentum. shorting MAMA is trying to be smarter than the market right here.......if i was going to even try to short MAMA trying to find the top i would wait til the day where MAMA reverses intraday and look to close near the bottom of the intraday range on volume and put in a short end of day playing the better odds that the reversal will carry over into the next day.......but arbitrarily shorting on the way up simply because its up a certain % is just rolling the dice, like shorting EFUT early......

Willard thinks the same, ORKiter:
"Money managers who aren't running billions can make a serious impact on their performance if they run a ton of money into relatively illiquid stocks that are among their biggest positions. And you'll certainly see some micro- and small-cap stocks put on some big double-digit moves. Take Mamma.com (MAMA - commentary - Cramer's Take - Rating) today, for example. I don't think I'd want to try to game such action, but I certainly wouldn't want to be short many small-caps into year-end. "

http://www.thestreet.com/p/rmoney/codywillardblog/10329176.html

Where is the outrage over this? Is it on CNN or in the NY Times. Unbelievable. Why do we never hear about ANYTHING the democrats do like this. Why does it ALWAYS take a conservative wing to find this. This proves ONCE AGAIN that the media is as liberal as it can be. They ALWAYS cover up democrat misconduct while OVEREXPOSING to the extreme (Foley) conservative f*** ups.

I will NEVER vote democrat ever again. The abuse by the media to hide mess like this just makes me so mad. I hate liberals, I hate the media, I hate hypocrites, and this just PROVES TO ME ONE MORE TIME that if it wasn't for great papers like the NY Sun, Fox news, and IBD I would be a brainwashed fool like the rest of the idiots that walk all over this island who have NO clue what Jihad means.

What is Jihad?

What is Hamas?

What is Hezbollah?

Who is Hassan Nasrallah ?

What is the 12th Imam?

I have NEVER spoken to ONE LIBERAL who knows what any of these terms mean, who these people are, what these groups are. Wasn't it our new Homeland Defense guy who did not know the difference between Suni and Shia? He didn't even know what faction Hamas was or what faction Al-Quaida was. Unbelievable. Sickening.

I love your articles Author Ego. Thank you for helping keep me informed. I need all the backup info I can get. The 1996 Osama London paper war decleration was brilliant. Printed and delivered to any moron out here who thinks it was an inside job.

Quoted from Market Speculator

Rev went short MAMA

You see he is losing it. He has more money and doesn't know what to do with it. His trading style is changing for the worse. Why the hell would you short this strong of a stock? You can wait for the first big selloff THEN short it.

Rev is getting nuts. His long candidates SUCK, his new trading style SUCKS, and I am not sure if he is going to continue to be considered the best if this is how he thinks he needs to trade.

Cody is right! Like always. That guy is a smart guy. I can't believe he doesn't use technical analysis.

Cody is one of my favorites to read. I just can't and never will trade his style.

Quoted from ORKiter

to each his own......mama will pullback eventually but why fight momentum. shorting MAMA is trying to be smarter than the market right here.......if i was going to even try to short MAMA trying to find the top i would wait til the day where MAMA reverses intraday and look to close near the bottom of the intraday range on volume and put in a short end of day playing the better odds that the reversal will carry over into the next day.......but arbitrarily shorting on the way up simply because its up a certain % is just rolling the dice, like shorting EFUT early......

Brilliant analysis, ORK!!

Quoted from MauiTrader

You see he is losing it. He has more money and doesn't know what to do with it. His trading style is changing for the worse. Why the hell would you short this strong of a stock? You can wait for the first big selloff THEN short it.

Rev is getting nuts. His long candidates SUCK, his new trading style SUCKS, and I am not sure if he is going to continue to be considered the best if this is how he thinks he needs to trade.

Then you'll just have to take his place!!!

When in a rip current you swin perpendicular to the shore...never does it say to FIGHT IT!

For all!

Please read:

http://www.investors.com/includes/edit/AAIIDec2005.pdf

Quoted from Market Speculator

When in a rip current you swin perpendicular to the shore...never does it say to FIGHT IT!

But you need to know that BEFORE you get caught in the rip, otherwise human nature takes over...

I wonder if you'll find this on CBS/ABS/NBC evening news....

http://www.foxnews.com/story/0,2933,237857,00.html

so you are saying you should do some homework before you enter into something you've never been or done before...interesting concept.

sadly...most people new to the stock market....don't.