If Specialist Joe is buying 10,000 shares of IBM and he's selling it to 100 people who are selling 100 shares each, we have more sellers than buyers, but the smart money is buying.
Exactly, and that's what's called buying on weakness. Specialist Joe could spend a week sucking up shares from joe sixpack because of things like an analyst downgrade or Cramer don't buy recommendation only to sell them to a Mutual Fund in the form of block trades.
The specialist or Market Maker (MM) is in it for business just as much as you and me. For Example: The MM gets a buy interest message that a Mutual Fund would like to buy 900K shares at a price no higher than $45.50. The MM can't just let the Mutual Fund buy all the shares at once, and neither does the Mutual, it would drive the price up too high too fast. The MM lets the price get down to around $40.00 and starts to buy the shares from the burst of sellers on a stock downgrade or stupid China selloff. Once he accumulates 900K at an avg cost basis of around $40.25, he lets the Mutual Fund know and it's time to start selling to the Mutual Fund. He sells the shares in a bunch of Block Trades over the next few days to the Mutual Fund for around $45.50 and pockets the .25 a share profit. Of course the MM is in it to keep the buyers and sellers at bay, but that's the way it works. On days of huge selling, the MM is the one buying back shares to keep the Bid/Ask as tight as possible and regulate the trading of his stock.
I don't think the NAZ has Market Makers, they rely on ECN's to keep the Bid/Ask tight.
Big Money can be considered the most conservative of all investors, contrary to popular belief. The BM has access to a wealth of knowledge the retail investor couldn't dream of accessing including conference calls with directors of companies. BM has the ability to hold long term in pension and retirement funds and makes huge money off dividends alone. The retail investor seeks the knockout punch... the next HANS or CROX, while BM can sit and watch their gains grow over the years. Right now, you know big money is hoarding shares of companies like GS and LEH for the long haul.
One more thing... Big Money knows the retail investor has caught on by watching the daily trading volume, so they are getting even better at lying low and stretching their buys out over a few months making them harder to spot.
