19 July 2016
Stock prices are a function of supply and demand. Other influences such as earnings, the economy and so on may affect the desirability of owning (or selling) a stock.
If a company reports surprisingly low earnings, demand for the stock may decline. As it does, the balance between buyers and sellers is changed.
Buyers will demand a discount off the existing price and many motivated sellers will accommodate. More sellers than buyers means there is more supply than demand, so the price falls.
As buyers move into the market, demand grows faster than supply and the price goes up. Some times supply and demand find a balance, which is a price that buyers accept and sellers accommodate. When supply and demand are roughly equal, prices will bounce up and down, but in a narrow price range.
It is possible for a stock to stay in this range for days or months, before something else disrupts the supply/demand balance.
There is a inter-relation ship with supply and demand and a stock’s price.
If demand for a stock exceeds the supply, its price will rise. However, it will only rise to point where buyers suspect demand is declining.
At that point, holders of the stock will sell. Some may have ridden the price up and believe a reversal is coming so they take their profits and sell.
CAclubindia
