Initiate coverage
I noticed that sometimes when a broker started/ initiated coverage on a stock, it tends to have buying interest and the stock will move up.
There are few reasons to this. Assuming I trade with ECM, and I only read newspaper and ECM research. One day ECM started to cover ABC stock and said is good Buy. I don’t know anything ABC stock, but after read it, I like it and I buy. ECM also may have many customers doing the same.
Another reason is ECM research mainly is read by ECM customers. But sometimes if after they initiated coverage on a stock, the next day newspaper, online newspaper, business magazine may publish it with a title “ECM initiated coverage on ABC Stock with buy recommendation and target price of $X.XX”. Because many people read newspapers, that may creates more buying interest.
Especially during good market sentiment, people just need a bit of news to buy a stock. If you are ECM customers, you will have access to that research faster than the public.
RISKS, LIMITATIONS OR DIFFICULTIES:
The price may not go up. Higher chances of going up is only when market sentiment is good. Furthermore, the price increase may not be enough for you to take profit. And after a while, the stock may lack buying interest.
You also need to check whether the price has gone up before they initiate coverage. The day they initiate coverage, the stock may start coming down if previously has gone up a lot.
OPINION:
For me, I don’t buy base on initiate coverage, but I do notice that the stock will have buying interest after a broker initiated coverage. I will only buy if the fundamental are really good such as low PE ratio with high growth, etc. If the stock is good, and I read it on the day that broker initiated coverage, I normally buy it immediately before the public know. If I don’t buy, and the public know about it and the price jump, then I got no chance to buy.
But this normally happen if the market condition is ok. In bear market, no impact.
But this normally happen if the market condition is ok. In bear market, no impact.
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Thanks
When you see this kind of report more often than not it's being distributed by SM after a period of accumulation working hand in hand with the research firm.
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