Yes, the classic shake out can come in a variety of forms, especially before a big run. Most of the shake outs in a stock are actually naturally occuring; caused by a systematic run up in the price and volume where more and more holders see bigger and bigger gains so profit taking turns it lower for a bit even in the presence of increasing level of buying. These can be looked at pauses or corrections, its natural. Sometimes the MMs or other market participants who happen to have the capacity to take control of the price and volume movements on any given day can and will use several tactics to whip the stock around in order to "shake" the tree to get weak hands out of the stock. It makes sense. Before you climb up something like a rope or a thin tree, would you not tug on it and shake it first just to see that it can handle excessive force? Big buyers often use a quick pump and dump tactic before starting major accumulation. They will buy an few times the average volume position and buy on the ask the whole time to make the stock move up significantly (for flippers and traders ~20% to 30% or so) and then they will quickly dump it all at lower and lower prices to basically test the waters and see how much influence over the stock they truly have with their buying. After this they feel secure that when they begin real accumulation, they will not be leaving a wake of gaps and would-be sellers at those levels once the train leaves the station; ie.. it will only be them with cost basis's at those levels. The other way it can happen is typically the MMs with virtually unlimited shorting power will allow the traders to take it up quickly and then they will move in and heavily short to quickly make the chart turn over to instigate a downtrend, if the buying pressure is enough to stave it off they cover at the same price and continue to allow it to trade higher or at the same level, if not, if it begins to fall then they just keep those shorts on and cover lower later for a profit and they have restored balance and order in the stock; ie.. it should not have been at those higher levels in the first place because it was toppy. Most of it is healthy action and natural price discovery. As long as we do not see daily short ratios that are too high then we can be sure that the stock is just trading normally with healthy action. Though again today we see close to 40% of the total volume was short sales so IMO this is not healthy action. Then again because there was so much shorting and covering action compared to normal trading and yet the PPS only moved down slightly (5%) it suggests to me that the buyers and holders are strong here at these levels. The bashers seem to be out in force with a mere 5% decline but its a rather non-important correction and pause before what could be the next leg up. I do not consider the stock performance today to be anything special, just another day with a mere 1% to 2% of the float trading, assuming the rest was shorting borrowed shares followed by covering action.
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$RFMK!
