Stocks 

When we are buying stocks, commodities, or collectibles, we always want to buy low and sell high (or buy high, sell higher).

To understand price, we have to see both supply and demand. Supply - e.g.,
shares of stock outstanding, tons produced per year, number of paintings or
rare coins - is usually limited and known. For commodities, the producers sell
what they have and normally they don't hoard what they produce in order to
maximize present revenue. When it comes to stocks or collectibles, only a
fraction of those are sold each day.

There are many reasons for sellers to sell. How does selling affect price?
That depends on whether they want to sell at a certain price. If nobody sells
and there are buyers, there would be no trade, and the price would go up until all buyers quit. In actuality, however, there are market makers holding some inventory to make trades happen and to give some continuity in price.

So how does one explain when there is a "gap" in price, particularly after a
news announcement? I am not a market maker so I am not sure the exact reasons. My guess is that the buy/sell ratio is extraodinarily high or low and drastic price change is needed to balance the orders.

What about demand? Demand is very difficult to gauge because the source is so vast. Let's take gold, for example. Does anybody know how much gold is
consumed? Maybe one can get some number by tallying up all the orders by
industrial and commercial users. Other than consumption, there is buying by
individuals and institutions. That buying is unpredictable.

A question one must ask is, "What should the price of a commodity be if there is no shortage?" In theory, that means there is more supply than demand and price should fall until some suppliers quit. The reality is, there is always investment or speculative buying which drives up price.

Thus, when the price of something accelerates to the upside in the absence of a supply shortfall, that can only tell me that the speculation is heating up.
When interest rates are going up, the source of speculating capital gets more
expensive and buying will eventually slow and price support becomes weaker and weaker. When the price begins to fall, it falls quickly because selling picks
up while buying slows down.

The way I think is, in order for price of something to go up, there needs to be more money going in than coming out. How can more money going in than coming out over time? Sufficient liquidity and improved perception. Sufficient liquidity means those who want to buy have the funds and those who have bought aren't forced to sell. Improved perception assumes that the worst is over and bad news won't reverse the money flow.

In this regard, buying something that has widespread talk of bankcruptcy seems to be the safest way to go. No, I am not suggesting people to buy GM stock. The pension issue is there and I don't see any sign that it can hold its market share.

James