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Specialist Control Over Market Openings And Closings

Controlled Openings And Closings: It is still the basic scenario of wholesale and
retail merchandising. When they drop prices
According to the Securities And Exchange they are looking for the ultimate wholesale
Commission Report Of 1963 and I quote, bottom, possibly conducting several short
"The Control specialists have on prices is no advances along the way to unload inventory
better illustrated than at the opening. Although it and sell short. Once they have achieved
is impossible to isolate one aspect of the their low wholesale prices and are flushed
specialists activities as the most important, any
ranking would have to place the arranged with inventory budging from there shelves,
opening high on the list". there next function is to rally to retail to
unload the stock at its highs with several
They go on to say and I quote "The heart of short declines along the way to re-stock
the problem with the Stock Exchange is the inventory, before reaching the ultimate
specialist. If there was to be any reform of the highs.
market it should be with the specialist".
2) The next opening is a dramatic decline
It’s sad to say but none of the findings or as specialists approach to within 50 to 75
resolutions, which addressed specialist points of a rally high. The function of this is
short selling, has ever been implemented. again two fold.
What the Commission stated was that with
their controlled opens and closings A) One reason you have a sharp decline
specialists were "rigging prices". The like this before you go to a high is because
Securities and Exchange Commission has the specialist never allows the public, which
been a captive of the Stock Exchange and has been buying at current prices to sell at
its insiders since its inception in 1934. the highs. Before going to the final highs the
specialist will conduct not one period of
Arranged Openings: decline but a number of declines, because
he doesn’t want the public selling stock to
There are five important ways that him at the highs where he wants to do the
specialists handle prices at openings. selling. The function here is to shake out
investors before continuing the advance to
1) When you have a dramatic advance at new highs.
the opening while in the midst of a generally
declining market. The function of this B) The other function of a decline at the
advance is quite simple. The specialist has opening in the course of rising prices is that
accumulated an enormous amount of it allows the specialist to clean out the lower
inventory during the decline, and what this price territory of stock. In other words the
rally does is two fold. specialist sees orders to sell on his book,
which tell him if he drops the price of the
A) It keeps the public from continuing stock he is going to be able to get that
selling at what are still retail price levels. stock. This accomplishes two things, not
only can he sell this stock when he rallies to
B) It forces the public to rush in and buy the high, but when he moves down again
stock. This is what enables the specialist to after reaching the high there will be less
unload his inventory and sell short. stock to absorb as he moves lower.
The Securities And Exchange Report see in the beginning and middle phases of
pointed out that if the customers knew the a bull market. Invariably in a bull market in a
orders they entered on the specialist book bull trend you will see stock prices opening
were actually responsible for the decline he down. Prices will be up at the close and
conducted to get that stock they would then down 10, 20, or 30 points at the open,
never have entered their orders on the then up again at the close, and again down
specialists book. at the following mornings open. Then
maybe the market will do nothing for two
3) The next opening you see is really the days or so, then a little advance, and then
sum and substance of how specialists sharply higher. This is called “the sneaking
achieve there most important objective, the up process”. The declines at the open
accumulation of stock at wholesale price keep the public from buying, and they also
levels. When they start the decline investors trigger public selling which allows the
are praying prices will reverse and go back specialist to accumulate stock and then
up. Specialists know this and play them unload it back to the general public on the
along. Each time they drop prices they then way up.
rally back a bit, may be for a day or two,
and then go down again. Investors hold on Each time he drops the issue he picks up
to their stock. They know they should sell more stock because he wants to keep his
but they are hoping for a miracle. investment accounts that he filled at the
stocks lows in-tack. He doesn’t want to sell
Then, when specialists are near the bottom, any of his stock anywhere except at the
they drop prices sharply, which is what they highs. So in the course of the bull phase he
were planning to do all along. The first needs to accumulate stock to sell to the
decline sets the stage as the investor says public when he rallies. The other reason he
I’m going to get out. Sure enough the next drops prices at the open is to cover the
day the price is dropped again and short sales he established at the previous
investors begin selling. This can signal the days close. Once he covers those short
beginning of a major rally, especially if sales he is up and on his way again.
during the day you see major big block
accumulations. It could also indicate a 5. The next opening is “the sneaking down
short-term rally to distribute stock before process”, which is basically just the
moving still lower. opposite of the proceeding process. This is
called the opening advance after several
The extent of the big block activity or the declines in a declining market. In a
lack of big block activity provides you with declining market what they generally try to
your clue as to whether specialists have do is advance at the opening and then drop
launched a sustained rally, or a short-term prices at the close. This keeps public hope
rally to unload inventory before moving alive, there by preventing selling, and
lower. When they do this they hit you with a encouraging buying at higher prices. It also
major decline one day, they rally a little for a allows the unloading of inventory before the
couple of days before hitting you again with Specialist moves to lower price levels.
another barrage of major declines. This
causes investors to hold on to their stock
with the slim hope that things will turn
around, but they don’t. Arranged Closings:
4) The next important opening that
specialists employ is something you always
Now we move on to the two most important buying and encourages them to sell at what
closings in the specialist system. These two are wholesale or near wholesale prices.
systems will show you how the money They are further discouraged when they
stolen from the many is distributed to the see prices dropping at the opening the next
very few. morning. The rally is then resumed later in
the day or the next day.
1. The first closing is in an up trending
market. The market or stock will be up all If however, there has been significant big
day, and then suddenly at the close is block activity at the high, it could indicate
advanced dramatically. This is part of the the terminal phase of the rally. Whenever
sneaking up process discussed earlier. The you examine how specialists handle
small advance during the day doesn’t openings and closings, the question you
encourage public buying. The sharp rally at should always ask is, what are specialists
the close enables specialists to advance trying to get investors to do. That will tell
prices with a minimum of public you whether specialists want to buy or sell
participation. That sharp advance generally for their own accounts, and therefore
used to come in the last hour of trading. subsequently rally or drop prices.

Now its getting to be the last half hour and In the presence of big blocks this type of
often times in the last 10 to 15 minutes of closing decline could indicate the beginning
the trading day. The reason it is done at the of the sneaking down process. It allows the
latest possible time of the day is because it specialist the move to lower prices, without
gives investors a minimum amount of time stimulating public selling until prices are
to make up their minds and then get into the much lower.
markets to buy. If specialists had conducted
a sharp advance earlier in the day, say
three hours before the close, they would
have allowed investors to buy all during that
time. But by rallying at the close they
prevent a great deal of public buying. Then
investors think about it all night and decide
to watch the following mornings open.
When specialists open the market lower,
the public becomes discouraged, and again
holds off making any purchases. Its all part
of sneaking prices higher.

2. The last important close that can tell you


a great deal about specialists’ plans for the
future is the decline at the close in the
course of sharply rising prices. If the market
is in an up trend and the Dow is up say 150
points or more, and is dropped 25 points or
more during the last hour, there are two
possible functions with this type of close. In
absence of big block activity at the high, the
probability is this is a sneaking up
operation. This discourages investors from