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In forums people often ask the question - How Does the Stock Market Work? The simple answer is that the stock market is a market like any other and it works on the principles of supply and demand. The more complicated answer is the stock market works the way the maket manipulators want it to work, and to believe otherwise is to be very naive.
In the following video 'how does the stock market work' Jim Cramer explains how he and people like him use millions of dollars to make the stock market work the way they want it to work.
In the first explanation you may consider the stock market to be like an ordinary market where people buy and sell stuff to each other. If there aren't many apples available in a fruit market and lots of people want apples, then the price of apples will go up and vice versa.
In the stock market a company divides itself up into small 'shares' and sells these shares to investors who thus become entitled to a part of the profits (if there are any). These investors can also sell these shares to other investors. The aim of course is to sell your shares for more than you paid for them. Sooner or later however somebody will buy the shares and then find that nobody else wants to buy them off him. This is known as the 'bigger fool theory' i.e. you have sold your shares to a bigger fool than yourself.
This is what happens when the stock market reaches a high point and can go no higher, because nobody is willing to buy the shares anymore. This happened back in 2007 and led to the stock market crash from 14,000 down to around 8500.
Well that's the theory at least but in fact simple supply and demand is not the whole story. There is a lot of market manipulation that goes on by people with very deep pockets who can drive prices up and down as suits them. Imagine if someone were to start a rumour that apples were bad for you, then people might stop buying apples and the price would dive as traders tried desperately to get rid of them. Well this sort of thing goes on in the stock market too, every day of the week.
In his video - How Does the Stock Market Work - Jim Cramer explains some of the tricks that market manipulators get up to. He is very well placed to know as he was one of them, as he readily admits, and probably still is. There are some people who maintain that the whole of this recent stock market crash was manipulated by Goldman Sachs, who have managed to eliminate or destroy three of their main competitors over the last year. On the stock market things are never what they seem. There are people who maintain however that you can see which way the market is heading from the charts and you can therefore see how the stock market works by studying stock market charts - for further info. see stock market charts for beginners.
This post on how the stock market works has been moved please click here - How does the stock market work to see the updated version of this post - please accept our apologies for any inconvenience
Is this the start of the pull-back in the stock markets ? Those of us who missed out on the rise from the lows in March have been waiting for a pull-back and for the stock markets to retest the lows. It may be too late now for a pull-back to the absolute lows in March but some sort of fall in the markets seems to be well overdue.
So could today be the beginning of a significant market correction ?
Oscar Carboni is still recommending 'buying the dips' so he sees today's fall a buying opportunity. I've got to admit he is right more often than he is wrong and called the bottom back in March - but it would still be nice to see a signigicant correction so we can all get in at the bottom.
World oil prices have been falling today possibility as a result of the weak consumer confidence data in the U.S.
September light sweet crude fell to 65.82 dollars a barrel.
October Brent North Sea crude fell to 69.73 dollars a barrel in London.
Earlier, they had both hit two-week lows of 69.54 dollars and 65.65 dollars.
Prices nosedived last week as weak US consumer confidence data dampened hopes for a recovery in demand.
Global stock markets are down today despite the fact that Japan, like France and Germany, has emerged from recession.
China, Tokyo and Hong Kong stock markets fell sharply.
Traders have also started worrying about storms in the Gulf of Mexico, which could disrupt the US energy installations.
At the moment the FTSE is down 77 and the DOW futures shown an open of around 140 down in the US - S&P futures show an open around 15 down.
The dollar is also falling - down to 1.63 against the pound and it seems that the markets fall when the dollar falls.
Thinking of investing in Vedanta Resources ? Check out this can of worms first. The Indian Government is threatening Vedanta Resources with Prosecution over its proposed mining on Nyamgiri mountain - see Guardian article - Vedanta Resources Prosecution Threat
See Survival International site - Vedanta Resources - Behind the Lies
See also Yotube video about Vedanta Resources lies
Sell QinetiQ at 132p Sell African Minerals at 340p
Buy Shed Media at 66p Buy Victoria Oil & Gas at 3.65p Buy Begbies Traynor at 105p Buy Nicholls at 265p
Updates
Buy BAE Systems, Euro Goldfields, Trading Emissions, Development Securities, and Prodesse Investment.
Sell Thorntons.
Company results
Buy Catlin, International Power, Mallett, Morgan Sindall, Hardy Underwriting, Aviva, Stanley Gibbons, Cobham, Vernalis, Genetix and Stagecoach.
Sell RSA Insurance, Intercontinental Hotels and Logica
FINANCIAL TIMES Lex
Prudential: the strategy of foresaking volume growth and conserving capital has paid off. French and German 0.3% GDP but still too soon to say the worst is over. US foreclosures almost a 33% more homes got foreclosure notices in July than a year ago
Comment
Inchcape up on bid speculation Hopes that Gulf Keystone is close to selling its Algerian assets to CDF Suez. ServicePower Technologies' management said to be holding out for a 10p bid.
THE TIMES Tempus - Share Tips
Buy Tomkins lower down Hold Thomas Cook Buy Psion
Comment
Bid speculation lifts Alphameric Cineworld may report better-than-expected earnings on Thursday Tiddler to watch - Indus Gas
DAILY TELEGRAPH Questor - Share Tips
Buy Primary Health Properties Buy Standard Chartered
Comment Brent Hoberman looking for new dotcom darlings. Stepstone up on Axel Springer bid speculation
THE INDEPENDENT Investment - Share Tips
Sell Tomkins Buy Greencore Hold Psion
Comment Mitchells & Butlers flat on fears of capital-raising
