Hedge Funds and short selling

[Aussiest]

Hedge Funds and short selling.

I understand that Hedge Funds involves large pools of money that are injected into the markets for investment purposes. And, that most likely, Hedge Funds' managers use short selling.

Correct me if i'm wrong??

My query is in relation to Hedge Funds and their influence on the market.

For eg., the latest MQG sell off:

It was obvious early last week that MQG shares were being sold off at an alarming rate. Many of the sell orders were quite large, and constant, which makes me think lots of short selling was taking place.

I wonder what will happen when the short sellers close their positions?

I wonder what happens to any stock that is targetted by short sellers, when the shorts close their positions?

I would assume that once the short sellers close their positions, the stock is left with a deficit of 'long' holders, as the borrowed stock is then returned to the broker?

For example, if a stock is sold down at $46.00 and reaches a low of $40.00, before bouncing back, one would assume that the short sellers will close their positions before the price reaches $46.00 again. This makes me think that the stock may reach up to $46.00, but with poor support (lack of long holders). What this equates to is a weak 'bounce' price, due to the lack of long holders.

I surmise that in order for a stock to stay at, or rally above, it's bounce 'recovery' price (in the eg. above, this would be $46.00), a whole lot of new confidence and interest from buyers (people wanting to go long) would need to occur.

I guess what i'm trying to say, in sum, is that once a stock has been attacked by short sellers and they close out their positions, the new price may be on shaky ground due to a lack of long holders.

Am i thinking along the right lines?

Disclaimer: i am only using MQG as an example to illustrate a point.

 

[skyQuake]

Re: Hedge Funds

funny you should use MQG as an example. Macq staff's internal trading days just finished last week. ie, the only window of opportunity where you can sell each financial year (think theres 2 per year)
So it may not have been all hedge funds unloaded...

 

[korrupt_1]

Re: Hedge Funds

funny you should use MQG as an example. Macq staff's internal trading days just finished last week. ie, the only window of opportunity where you can sell each financial year (think theres 2 per year)
So it may not have been all hedge funds unloaded...

interesting... so how does one find when such stocks do that? is it common practice to limit the of number days internal staff stocks can be sold? if you know when, perhaps one can exploit it somehow?

 

[Aussiest]

Re: Hedge Funds

funny you should use MQG as an example. Macq staff's internal trading days just finished last week. ie, the only window of opportunity where you can sell each financial year (think theres 2 per year)
So it may not have been all hedge funds unloaded...

skyQuake,

Is that what an 'Appendix 3B' means? There were several of those posted over the last few days of last week (the sell off). There was also a 'Section 259C Notice' posted.

Whichever way you look at it, do you think it's such a good thing if the 'internal' staff of a company are selling off it's shares?

 

[skyQuake]

Re: Hedge Funds

Not sure about Appendix 3B.. maybe only relates do directors as they have duty to disclose? Anyways, the staff window of opportunity for trading is determined internally, but is pretty much seasonal.

Contrary to popular belief, not every in the Bank knows whats really going on. Many divisions in the bank, with varying degrees of profit and outlook. Obviously the internal accountants/auditors may know more about the real performance than someone working in say BFS Private Wealth. Imo its just herd mentality... going down? sell! Going up? buy more! etc...

As to finding out what days staff trading windows are, you've gotta have someone on the inside or have worked there before. Quite sure MQG doesnt publish it. It makes for some heavy volume, but its random as far as I can see.
May be possible to exploit when markets are deep in fear or deep in greed.

Cheers