Holding The Market

Holding the market is the practice of placing active or pending orders for a security into a market where the price is dropping rapidly in an attempt to "hold" the price of the security steady, or create a floor in the security. This practice is outlawed in most market instances, except when a broker or other party is mandated to keep the price of a security steady. This is only done in rare cases where there isn't enough market depth to hold the price.

Holding the market is also sometimes used as a slang phrase for owning a general market index such as the S&P 500 or Wilshire Total Market.

Holding the market is hard to pull off these days because any one person would have to have very deep pockets to make a significant impact on a security's price. One of the things that keeps holding the market from occurring more frequently is that it is rarely profitable and can often lead to severe losses if prices do not rebound. However, if such an investor with very deep pockets is considering a holding the market strategy, they should definitely try to understand first why the price of the security is dropping.

Stocks that are declining in price often have recurring themes that, once identified, can help an investor decide if a holding the market strategy is the right course of action. These themes are typically related to one of three things: market movement as a whole, industry action, or firm-specific issues.

Most stocks react to market moves in a consistent pattern. Further investigation is warranted if the price movement of a stock suddenly starts to deviate from its past relationship with the stock market or related index. Even if the company appears to be in the same condition as it was when you bought it, a lagging stock price in relation to the overall stock market may mean that there is a group of investors that believe that the stock's fundamentals have changed. In this situation, it's important to consider if putting more money into a company's stock would be worth it in the long run.

Just as the market as a whole can affect an individual stock's price, so too can the state of its industry. A downturn in a stock can be attributed to the cyclical nature of its industry, a long-term secular trend, structural weakness within the industry, government regulation of the industry, or liability issues facing the industry. In such cases, it's important to research the possible implications for industry trends on your individual company.