What makes a stock go up?

The markets have been a mess lately.  If you're like me, your portfolio of stocks is feeling some pain.  Us longs (as opposed to shorts) would love to see our stocks start going up for a change.  What makes a stock go up, anyways?

Good question.  First it might help to answer, "Why does a stock trade at a certain price?"  Shares trade for the price at which one entity is willing sell shares and another is willing to buy shares.  It's just that simple: someone wants to buy and someone wants to sell; the transaction happens when those match up.  The potential buyers and sellers usually find each other with help from stock exchanges like the NYSE, NASDAQ, and AMEX, where the target buy (bid) and sell (ask) prices get advertised.

When I buy shares, I want to get those shares at the lowest price possible.  When I sell shares, I want to sell them for the highest price possible.  (It's all about the Penti... er... money, baby!)

The stock exchanges are set up so that if someone wants to buy shares, the first shares to be sold to fill that buy order are those with the lowest ask price.  That lets the buyer get shares for the lowest price possible.  Similarly, if someone wants to sell shares, the the shares go to the highest bidders first.

Now onto the question at hand: what makes a stock go up?

A stock trades higher when shares are being bought quicker than they're being sold.  Here's a quick example of one way for a stock to rise.  Suppose the asks (# of shares someone wants to sell at certain prices) for BRCM are:

100 shares at $14.50
200 shares at $14.55
700 shares at $14.65

Suppose BRCM's last trade happened at $14.45 / share.  Theoretically, if no one else enters the picture and I place a market buy order for 1000 shares, where will they come from?  Those transactions will happen for me at the lowest advertised prices, or lowest asks first.  So the first 100 shares I'll get at $14.50. 900 left to go, and the asks now look like this:

200 shares at $14.55
700 shares at $14.65
500 shares at $14.67

Now the cheapest price for me is $14.55.  Since those 200 shares are the cheapest and I have 900 more shares to buy, I snap up those 200 shares and now the asks look like:

700 shares at $14.65
500 shares at $14.67
100 shares at $14.70

Which are the cheapest now?  You guessed it -- the 700 shares for $14.65... and I buy those.

Let's step back for a second and check out what happened here.  Before I placed my market buy order, the stock traded for $14.45/share.  By the time my order finished executing, I drove prices up to $14.65.  Make sense?  Action like that is what makes a stock go up!  Hypothetically the next buyer would have to pay what price next?  $14.67 since that's the cheapest ask after my order executed.

Keep in mind that there are other factors and players involved, and many considerations play into making people want to buy or sell at a certain price.  What you see here is one oversimplified "closed environment" example, but you get the idea that the trade price is the price where the bids and asks matched up.  When more people are buying more shares than others are selling, the price goes up.  Supply and demand, if you will ;-).

Full disclosure: At the time of writing I have no position, long or short, in BRCM.