Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 216

One of these products, for example, is the hard drive. Hard drive companies (such as Seagate or Western Digital) in turn depend on other businesses such as disk platter makers or electronic component makers to produce their products. If there is evidence that disk platter makers are doing well, it could be deduced that ultimately orders from the PC sector may have increased in response to higher consumer demand for PCs. This could signal a strong performance from the PC makers which could help boost their stocks.
Other Company/Institution Investment - Many large companies in search of ways to diversify their businesses or their own investments many deem a certain smaller company worthy of investment. This could result in the larger company making a significant stock purchase in the smaller business in order to gain a substantial controlling position in the smaller company. This move usually boosts the smaller company's stock price. In addition, investors could view such a move as a vote of confidence for the smaller company and push its stock price even higher by buying up shares. An example of this would be Red Hat, whose flagship Linux product is a promising operating system for computers.
Short Squeeze - In our discussion of trading stocks we discussed shorting stocks as one type of trading in which the investor borrows and sells shares of a certain stock, and can make a profit by buying back those shares at a later date if the share prices have dropped from the date when the stock was shorted. Of course at times this plan backfires, the stock price may continue to rise, and eventually the trader is forced to buy back the shares at a higher price than the shorted price and take a loss. If a stock is heavily shorted, and its price continues to increase, more and more traders who have shorted the stock are forced to buy back the shares. This buying frenzy (given little relative selling) feeds on itself by pushing the stock price higher until a stable condition is reached. The more shares that are bought back, the higher the stock price goes, forcing more short sellers to buy back shares to cut their
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Table of Contents
Copyright and Disclaimer
Book Chapters
Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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