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THE MARKET WHISPERER 35 3

quantities; the movement of stocks held by large funds is gentler, since
a drop in price will often lead them to increase the amounts they hold.
When a stock rises sharply, however, they will take advantage of the large
volume to sell. Small caps, which do not receive the support of institutional
investors, are dependent on the whim and will of private investors who
can buy or sell with one click of the mouse.

A second reason for high volatility in small caps relates to something we
have already discussed: stocks move in cents rather than percentages. The
smallest possible gap in trading is one cent, whether the stock price is $5
or $50. At breakout, traders will push a $50 stock upwards by tens of cents
in just the same way as they may do with a $5 stock.

Very few funds are permitted to trade in small caps (under $10), but
generally all funds are prohibited from trading in stocks with a price lower
than $5. When a stock price drops below the $10 mark, traders anticipate
that institutional traders will begin releasing their holdings, creating
expectations which tend to become self-fulfilling, causing the stock to drop
sharply.

We can use this knowledge to our advantage in two directions:
• Use the dropping price to short a stock beneath the $10 mark I am

so fond of. These breakdowns often turn out to be particularly strong
when they integrate a downtrend together with a breakdown beneath
the round number of $10.

Short in Dean Foods Company below $10, DF