Ray Zee might know how to play poker BUT...

He could use a lot of work on his understanding of the stock market.


Perception of whether a company's earning will go go up or down does NOT DIRECTLY influence the value of a stock.


Only one thing determines the value of a stock - it is the equilibrium price that is established by demand where the price at which someone is willing to sell equals the price at which someone is willing to buy.


When someone sells a stock short, this DOES put pressure on the value of the stock to go down.


Put it this way.


A stock is holding steady at 50 bucks a share. 1 million shares trade hands, and there is a buyer for every seller. Demand is equaized on both sides.


Now you sell 1 million shares short. There are more shares to be sold for 50 a share now than before. This will force the price down.


Now, how do interest rates effect the stock market?


It is NOT a matter of 'higher interest rates means companies earn less and therefore their stock goes down.'


When interest rates go up, there is more pressure on investors to buy bonds. The money used to buy these bonds has to come from somewhere - stocks get sold to pay for these new investment bargains.


When interest rates go down, bonds become less attractive investment instruments. Investors decide to invest in stocks instead.


Sorry to contradict you Ray, but you were just dead wrong on this one.

actually what you say goes somewhat with what i say. i just didnt make myself clear i guess. a stocks price is determined by its earnings. i agree that someone may sell short and that puts a slight downward price pressure as well as someone just selling stock they own. but they sell or buy because they believe that the earnings will move in that direction. any other reason is personal but that doesnt ultimately change the price of the stock as smarter people will move it in the right direction.

when people sell to buy bonds it means that the yield on the bonds is high enough to justify putting money there rather in stocks because the earnings of the stocks will not be high enough to overcome the extra risk factor.

to make myself more clear- a company's value is almost solely determined by its earnings potential. earnings go up stock price goes up. earnings go down stock price goes down.

"When someone sells a stock short, this DOES put pressure on the value of the stock to go down."


Sure it does...and the resulting open interest must be offset at some point, and that will put a pressure on the stock to go up.


So selling short puts a pressure on the stock to go down only in the short-term--not overall.


Is this correct? Enquiring minds wanna know.

sure it does, but only on thinly traded issues. with lots of shares available to trade short selling has little effect on price other than maybe a temporary blip of a fraction. and remember that if the price does go down below its value someone will instantly come along and bid those shares up.

that makes perfect sense

...concerning short selling and short squeezed...


"He who sells what isn't his'n, must buy it back or go to prison!"

.."a little learning is a dangerous thing"..


it is obvious that Analyst has learned some about the stock market


his statement "only one thing determines the value of a stock ---" is purely a look at the mechanics of a trade. It does nothing to explain WHY a buyer will pay XX$$, nor why a seller will accept.


his statement '---company's earnings--- does NOT DIRECTLY influence the value" goes against one of the most fundamental, most valuable tools used to measure a company's performance and worth


it has long been known that there are two fundamental emotions which move the market: fear, and greed.. Each decision is rooted in one of these. clearly the path of the earnings can triger either of these emotions....as many others can and do...such as the recent attack.