Nine good reasons why share prices make sudden moves

A while ago, I tipped a company called African Dawn (Afdawn), the success of this company was strongly reflected in their share price and this had caught my eye. A few weeks after tipping Afdawn, they released their excellent financial results. The share price had consequently moved by 22 cents. When a share price suddenly rises, we immediately get excited. Any goods news tempts shareholders to buy into a company. Should the results have been poor, the share price would have been impacted in a negative way. Shareholders would immediately have feared the worst and been tempted to cut and run. 

Share prices oscillate for all sorts of reasons. Some are to do with market sentiment as a whole. There are days when market sentiment is so poor that share prices fall across the board. And there are other times when big 'sector shifts' take place. Such moves are indiscriminate. But there's plenty of trading in individual shares in which there's no implicit view of the company itself. Here are some of them:

Dividends. This is the distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Dividend payouts may cause the share price to move.'Churning' or 'Overtrading'. There are many reasons why professional stock brokers might sell shares, one is traditionally known as 'churning' or 'overtrading'. Some stockbrokers charge their clients 'per transaction'. So the greater the number of trades, the more income they get. This is a strong incentive to regularly sell some shares and buy others. Less reprehensible is the practice of selling for tax purposes - to either establish gains or losses.A New Stockbroker. Every day portfolios of shares are removed from the care of one stockbroker and entrusted to another. The first action of the latter will be to turf out any shares that he isn't familiar with and replace them with those of his own choosing.Inflows and Outflows. If you're invested in a unit trust, you can sell your units at any time. And when that happens, the stockbroker must sell shares in order to raise the cash to pay you out. If market sentiment is particularly poor, or if this unit trust has a bad record, there might be a steady stream of holders redeeming their units. The stockbroker is then in the position of a 'forced seller'. He must raise cash by selling his holdings, no matter how attractive he may think the shares are.Employee Share Trusts. These days corporate employees are often rewarded with shares, as well as hard cash. If shares are awarded to an employee, the company will buy them in the market place and then put them to one side in a trust fund until the employee can get his hands on them.Exercise of Options. Employees are rewarded in shares, or sometimes in options over shares. Either way, they will at a certain date become owners of the shares and may choose to sell them. Often employees will act in unison on a certain date.Profit Taking. Any share that has risen will be vulnerable to profit taking. It's only good sense to bank some, if not all, of your profit after a good run. And if several shareholders decide to bank profits on the same day, expect the share price to drop.Tips and Rumours. Red Hot Penny Shares is the best, but not the only, service that recommends shares. A tip in the Business Report or one of the investment magazines can move a share price. As can a market rumour. Sometimes word will go round that a company will announce poor figures, or that it's trying to close a deal. Traders will jump onto these stories - although they may be without foundation.Raising Cash. Shares are sold to raise cash, pay alimony or death duties. Holding shares, is after all, only a means to an end. Don't forget that share price moves can also be caused by 'corporate actions'. These are things like the 'ex-dividend date', scrip issues and rights issue adjustments. In these instances, the actual value of your holding doesn't change, because the move is otherwise compensated. 

So, when you turn on your trading screen and see the price of your shares suddenly dip, don't automatically fear the worst. The true cause is probably quite immaterial, and the move will soon be reversed.You can find out the top shares to buy in 2010 in Red Hot Penny Shares. Start your 1 month no obligation trial now!

The past is not a guide to future performance. Trades in stocks recommended by Red Hot Penny Shares are small company shares. By their nature, such investments can be relatively illiquid and, as a result, hard to trade. This makes such shares more risky than other investments. Please seek independent financial advice if necessary. Profits from share dealing are a form of income and subject to taxation. Levels and bases of, and reliefs from, taxation are subject to change, and depend on individual circumstances.