Once More With Feeling

If you wonder what tomorrow will bring just take a look at the afterhours on IBM. Down 5 and change on an absolutely spectacular earnings report. The last time I saw this kind of market reaction was back in 2002. Then it didn't matter what the earnings were the street took exception to everything. IBM was selling at around 116 at the time and when the smoke cleared it was down in the 50's.

But that was a mutual fund clearance sale. The 'toots needed to get their books squared up and everything was so oversold there just wasn't anything to buy any more. So they started offloading inventory like there was no tomorrow - not every institution in any one stock but they kind of did a dance and some offed this one and some offed that one and so on. For example institutions A, B and C unloaded a few hundred million IBM, while institutions B, C and D unloaded a few hundred million of something else - maybe MSFT or LMT. The brokers bought everything and held it in inventory. Then, once the back was snapped the 'toots turned around and started buying again. Was there collusion? Oh Hell No! Everything up and up - straight and narrow all the way.

Which brings us to today. According to the NASDAQ site 4.5 million shares were sold in the afterhours. But that's just the tip of the iceberg - the NASDAQ transactions. Average volume is 6 million during normal hours and 14 million changed hands today and the stock went down 47 cents. OK - 2.5 times normal shares trade and the stock goes down 47 cents. Then the report, spectacular, and boom 5 bucks off the top just like that. Now it's nice to know that for every sale there was a buyer (eventually) but most often that buyer is a brokerage and that stock just goes into the inventory pending a better day. Most of them are hoping that the shares will be borrowed to the hilt tomorrow and sold short. Sooner or later the funds re-buy all the inventory and the dance begins again.

Now this isn't paranoia (although a good case of paranoia can be a blessing for a trader) but a proven fact. Of course we'll have to wait for 6 months or so before we can see who's selling today.