What Causes a Price Top?

 

 

 

 

 

 

Price tops are strange things, they tend to happen when the maximum bullishness is in place and the company underlying the stock is as profitable as ever. What gives?

Well many things cause tops, whether they are short term or long term. Here are some examples.

  1. Profit taking sets in, when you have traders and even investors sitting on $100 a share profits or the stock is up 50% in a quarter there are times when longs just want to bank their profits so they feel better about it, huge profits can make many people nervous.
  2. The market itself is going into a correction a red tide brings down all ships eventually.
  3. Mutual funds are holding all the stock they can so institutional sponsors can not continue to buy.
  4. A stock is over owned by the public, everyone who wants to buy has bought and the stock simply runs out of new fresh buyers.
  5. Fear sets in and holders rush to the exits to take profits because of a reversal off highs.
  6. Traders want to be risk off going into an important event like earnings, just in case.
  7. Systemic risk in the world economy causes overall bearishness.
  8. When investors start redeeming shares of mutual funds the money managers have to sell holdings to raise cash.
  9. Investors fill that the meat of the gain has already been made and they go looking for the next big trend.
  10. New buyers are waiting for a better entry at a key level so the stock does not find support until that level is reached.