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Strategies & Market Trends : From the Trading Desk

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To: David Smith who wrote ()	12/16/1997 4:42:00 PM
From: Gary Youree	Read Replies (2) of 4969

Questions for Mr. Smith Market Maker. Thanks in advance. I have a couple questions for you on small stocks...one in particular. I can see where mm'ers can and do manipulated small stocks to accumulate short term inventory...long and short. True? Does the mm have any restrictions on what he can short like a retail investor does? Like marginable? Or available shares? Do the shorted shares show up in the short intrest figures that are published? Do mm'ers take longer positions (weeks) on small stocks long and short? Which brings me to a question on a particular small stock I recently bought (3 weeks ago at 1 5/16) (and last week at 1 1/16) partly because of what I read into the huge volume the stock had on Oct. 14. The stock is CAWS..CAI Wireless. I have channel traded the stock several times. Unfortunatly I was not in the stock when volume started building the day before or the day it popped to nearly 3 on 9.9 million shares. And fortunatly I did not buy that day either. Alot of blocks traded that day and I had speculated the stock was being panic accumulated on some unpublished news. News never did come out and the company stated they did not know the reason for stock volume. BTW the average volume is around 300-500K. The chart shows the stock has a habit of breaking out to the upside on decending triangles with high volume. This is partly due to a following of momentem investors who follow the stock. I bought the stock after it drifted down to 1 5/16 (around the bottom of the next triangle. As you can see from the chart it didnt bounce but drifted int another decending triangle on low volume. I bought more at todays prices. Again my assumtion..which may be wrong..was that the majority of heavy volume were longs..not short covering. Part of this assumption was based on a (mistaken??) belief that there could be only a few retail shorts being squeezed because the stock is not marginable. BTW short intrest is 2.4 day ratio with 1 mil + shares average volume of 300K and a float of 17 million. I guess my question would be could this pop in price be due to: 1)market makers breaking the price up out of channel and starting momentum? That wouldnt account for 9.9 million volume I wouldnt think. 2)market makers short (and/or longs in the know buying) and covering on news yet to be common knowlage? 3)I doubt differant mm'ers would compete to cover..again I am assuming that there are few retail shorts in the stock because of margin requirments? Most these short shares would be mm'ers...true? 4) Since this is a reaccuring pattern I also assume the mm'ers accumulate a hell of a short position on these volume and price peaks. I am guessing that when they decide to cover..over news or the chart..they go long for part of the day too and then short again and large part of the volume may be due to this. The higher the stock runs up ..the better (and safer short positions they can take. I am sure the retail following of momentum players in this stock really help by piling on...but they cant short at the top under 4-5 bucks (margin requirments). So could most of the chart pattern be due to market makers? 5) I guess my biggest (and most risky) assumption is that this pattern will repeat (hopefully from 1.00 level)... That the mm'ers are short over a million shares and will need high volume to cover. That they will reverse their positions..bring in some buying volume and I will make money at 1.5 or so. If it drops more I am betting it will atleast bounce on some volume that I can get out even on nearly 50K shares at my average of 1 1/8. Thanks if you made it this far through my post and can answer some of these questions and give me some insight on market maker activity in stocks like this. Thanks

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