Many of us heard about the smart money but few understand what does it mean and how also it plays market and manipulate it and made it moved to its favor as much as it could.
Smart money simply is refer to shares belong to people who are own a lot of company stocks. The bored members of the company whom they have so many shares of its stocks under their control. They did not called it smart money because its more smarter than our money or because its IQ is way higher than others. They called it smart money because its belong to company’s decision makers and to first people who will know if the company make so much profit in this quarter before any other party, or if it did not sustain its profit for this quarter as it promise.
So based in this giving fact, the smart money is the first one to know if there will be a problem in the next earning report of the company before anybody else in the world. Those people will know if the profit will go beyond the expectation which is good for company’s stock, that allow them to start accumulate stocks as much as they could before releasing the earning report because they new that once the report is released the stock will goes up and make new highs that may be never made before. On the contrary, when the company did not made that much profit in its quarter or may be there was a lost in the earning, smart money will be the first to know about that and they start selling some of their shares before the price goes down and made profit before the stock drop.
But this is not the only way smart money manipulate the market with, because I am assuming it should be known to all of us that smart money has access to information before it become public.
The trick or method used by smart money, which is more smarter than the previous one, that used to manipulate stock market and made other investors confused and made them don’t know what to do is manipulating the guidance. But before I jump to explain what is manipulating guidance mean, let me define the guidance first.
Guidance report or as know guidance earning is simply the company expectation about its earning in the next quarter. Like for example if the company has an earning per share or (EPS) is 3 $ for this quarter but the company still believe it will double this (EPS) for the coming quarter. That means the earning guidance for the company is positive about the next quarter at least which means that its sales will increase and its profit will increase as well. But when the same company released its earning report which was (EPS) 3 $ but it mentions that somehow the earning will go down in the next quarter, which means that there will be drop in sales and profit, that means the earning guidance for this company is negative.
Both negative or positive earning guidance has impact on the stoke which made it drops some time to 5% or may be starting its correction phase, or may be stock will go in bear move that made it loss ,more than 15%-20%. Or on the other hand, it might make the stock to start soaring and going up in its bull move.
The effect of positive or negative earning guidance combined with positive or negative earning report respectively is clear for most people, but what will happen if the opposite was the case. How the stock will react to a positive earning report with negative guidance or negative earning report with positive guidance. That where the mess happen and here where the smart money or board members can manipulate the stock market. Because by law they cannot fake earning reports, but on the other hand, they can fake the guidance report and provide misleading information about it.
The smart money can fake the public by giving positive guidance while the earning report still negative in order just to make the financial institutes and other firms jump into buying this stock to end the accumulation phase and make the stock to start its uptrend, and the opposite is true, smart money might provide negative guidance to stock even with positive earning report to just let the financial firms get rid of this stocks and end the distribution phase of the stock and let it start drop in down move, and this is where smart money can manipulate the market. They can give misleading information that does not add up with fact investors already had which is earning report to made the stock of their company end accumulation phase and start going up or end the distribution phase of stock and made it goes down.
Either way, smart money at the end will win, and if you are an investors which means that you bought stocks and hold them for as minimum as (five years) you don’t need to wary about smart money manipulation for the stock they own, you just need to go with the fact that you had in front of you in the earning report and make your decision to either invest in this stock or not. But if you are trader who bet in stock’s price not in the company itself you need to pay careful attention to these type of information, and try to align your trading decision with smart money movement.