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, Think Finance (766 clicks)
Long/short equity, arbitrage, event-driven, research analyst
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One of the tools an active trader can use, is to search for stocks that are moving heavily in a given day's market session. Then the trader just has to understand the motive for the movement and if the motive can be generalized to other players in the industry, the trader might still be able to find stocks in that industry that haven't reflected the news that's already pushing the identified stock to make its move. This creates low risk, high likelihood to win, trades. This is also something that's better practiced during the pre-market hours, so it usually requires a broker whose systems are flexible enough to trade pre-market.

Today, however, we have a classic case of this kind of tool being misused. You see, ever since the open eBay (EBAY) has been racing ahead. This eBay move is happening because of the partnership its PayPal subsidiary struck with Discover (DSC), something the market is seeing as a way for PayPal to expand further.

It so happens that Amazon.com (NASDAQ:AMZN), which people usually associate as being a direct competitor to eBay, was also bought up by the traders, most probably due to the tactic I described earlier. That is, eBay is up, Amazon.com is in the same industry, so let's rapidly buy up Amazon.com as well!

Usually, this would make sense. But today, it doesn't. It doesn't make sense because Amazon.com simply doesn't have a payments service analogous to PayPal.

Conclusion

Today's trader-led movement on Amazon.com makes little sense and thus has a higher likelihood to be faded.

Source: Amazon: Putting In A Little Irrationality