Effect of day traders on a stock

[cuttlefish]

If a stock attracts the attention of day traders is that a good thing or a bad thing?

On the face of it it sounds like it should be a good thing, the simple thought process being that if a stock with sound fundamentals gets picked up by the exuberant hordes that will throw more fuel on the fire and give much more impetus to any runs in price. However on the downside, does this have the effect of unprising the more stable holders that take profits selling into the strong run and move on elsewhere and you now have a stock held by impatient day traders who throw it back and forth ad-infinitum, pushing the price up and down, preventing serious investors from taking an interest and thus ultimately keeping the price down?

So - if you've got a stock on sound fundamentals with the expectation that it will over the years show real returns due to generating initial profits and/or ongoing profit growth - do you prefer that day traders don't find out about it or do you want them on it? Or does it not really matter one way or the other?

 

[tech/a]

On Small caps day traders or very short term traders can have a considerable effect.

If you can find a stock being munched by the moronic pack animals,its like winning the lottery.
Often good natured hard working Fundamental traders get caught in the exhuberance and buy the huge volume and range finding themselves stuck in spikes that bleed them dry.

Shorts in these situations are a monte --- see them time and again.
Opps
Shark bar
Wide range ultra High volume bars
All react the same way.

And thats generally the opposite to the moronic crowds.
Holding a stock which spikes over 50-100% "Can" be extremely dangerous.
Personally I'd want confirmation both in price and Fundamentals if I were a fundamental trader.
Fundamentals alone just wont cut it.

 

[cuttlefish]

yeah we've all seen the spikes on announcements or on rumour/recommendation from the right sorts of people that cause the day traders to flock to a stock and then that stock tends to get mucked around with for a fair while until people tire of it - there's dozens of them at any point in time (RAU, CUL, RMI, WMT, ARE, AEX etc. are all recent examples)

I'm more curious for a longer term up trend on a stock that has sound and building fundamentals, whether the quietly undiscovered stock will build a more sustainable rise over time rather than one thats had the limelight shone on it too early and thus copped the day trader pack effect.

The more I'm thinking about it I don't think it really matters that much, in the longer run the fundamentals will ultimately influence the price direction. While in the short to medium term trade/market psychology effects will prevail and often can cause moves that dwarf fundamental factors completely. But in the longer term sustainable price re-ratings upwards or downwards tend to be driven by fundamentals.

Shorter term price behaviour also tends to depend on the activity and behaviour of the larger players in a stock and their agenda. (e.g. stocks like TNG, AGM, CQT, HEG, CDU, CQT all seem to have shown signs of more orchestrated price management by larger players at different points or maybe I'm just seeing conspiracy theories. But some of those have also had a single substantial shareholder that has been accumulating/distributing at different points in time).

 

[nikki]

interesting thread.

i watch ady carefully.

fundamentals are fantastic - top 5 reserve in lithium and solid iron ore production with massive sales contracts.

the problem: it has so many shares on issue that it is heaven for day-traders. it can be easily manipulated or moved especially if a few traders work in concert with each other.

management recently decided to consolidate the shares because i assume that the sp was being impacted by day-trading. i think it is the best thing they have done for this stock.

i bought ady on fundamentals and have no plans to sell but i am getting so incredibly frustrated by the sp movement especially in the past week.

as a contrast - sdl has just as many if not more shares on offer. i have been watching that for a long time and have not see as much manipulative day trading going on. i assume a lot more people bought that on fundamentals and kept the stock.

i for one enjoy both day trading and buying on fundamentals and keeping the stock. i think in the case of ADY the sp is clearly low for what it is worth and i am sure that day trading has a lot to contribute to this.