I see this a lot with stocks that are in a bull run with lots of catalysts and good financials that keep getting better and better. They will pump 30%, then pullback 10%, then pump again 30%, then pullback 10%, then pump again 30%, rinse repeat for X period of time. Why? Why doesn't it just keep pumping without any pullbacks. Why the pullbacks? The pullbacks don't really make sense considering the stock keeps going up. Why would people sell a stock that's undervalued, in a bull run, and it's earnings keep getting better and better. It keeps pumping for a reason. The 10% pullbacks just prolong the inevitable next 30% pump.
In my eyes, institutions should see these inefficiencies and take advantage of them and just pump the stock to it's instant true value. Not let the stock yo-yo with useless pullbacks. If a stock is undervalued at $100 and it's true value is $175, why let the stock drop to $90 on a stupid 10% pullback? It should just pump straight to $175 because any price under $175 is “undervalued” and a steal. Instead what happens is, it pumps to $110, drops to $95, then goes to $120, then drops to $105, then pumps to $135, then drops to $120, then pumps to $150, then drops to $130, then pumps to $175. Doesn't make much sense considering it's fundamental value has been $175 for months, and perhaps even more because of how long it took to get to $175 and additional news may have come out to make it have a fundamental value of $200 now. It's basically arbitrage buying any value below it's true value. So why don't institutions take advantage of this and just instantly buy every single stock on the market up to $175 instantly within the first 15 minutes of market open upon discovery of it's new true value (i.e. huge jump in earnings expectations)
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