Allyson,
Our conversation was most interesting and I can't wait to climb all over
this thing when we get a short squeeze going on the current rogue market
makers.
Here is an excerpt from today's alert from microcapstocks.com which is
required reading for any Nutek shareholder (of which I am now one):
"We have gotten a number of questions from our
subscribers in regards to all the action the last
couple days of the month. Why, you ask, do these stocks
get killed or trade with triple the normal volume and
wide swings. Well, here, in a nutshell is some insight
for you.
To a market maker (a broker-dealer who trades a stock
on a "principal" basis - publishing bid and offer
quotes) there really is no difference between
"realized" gains and those that exist only on paper. It
is similar to a margin account - if the firm is up $$
on a position, they can trade against that profit, and
even get funds against it. So you can see that they
would do basically anything they can to keep the market
price in a zone that pads their balance sheet.
99% of the street trades "short way" - they start a
position by selling stock they don't own so that if and
when selling comes at them, they can have their bids
hit and still be OK. The problem with this little
theory is it only works if stocks stay unchanged or go
down. Real nice for those of us who buy these
companies. Why do they all short - well, most stocks
DON'T work out in the end, plus the financial report
they file (FOCUS REPORT) makes a firm take a "haircut"
on its positions, 30% for longs but only 15% for
shorts. (take 30% off the value for calculating you p&l
on a long, add 15% to the value for calculating p&l on
a short)
So, hypothetical: Sharp securities is short 90,000
shares of ABC - a thinly traded OTC bulletin board
stock. His cost basis is $3.. except the stock is $4.50
a share - creating a loss on paper of $195,500 for the
firm. (90,000 times (4.5+15% or $5.175)) So, in the
interest of saving the firm losses and himself a job,
he sells another 11,000 shares in the couple days
before the end of the month filing - killing the stock
- driving it to $2. a share. Now the firm has gone to a
profit position of $70,000.
The next thing that happens is most of you investors
start saying "hey, no fair - the company is screwing
me." (the public company gets no benefit from the
trading of its stock, boys and girls!) Well, then
everyone starts selling their stock thinking, "boy I
better sell all of it right now while I still can" -
which is exactly the opposite of what you should be
doing - you are selling your shares back to the SOB who
shorted them to you in the first place and a third the
price he sold them to you at.
A week, a day, a month.. these are all meaningless time
frames for an emerging growth company. Buy fundamentals
- if they get cheap, buy more. "
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This market-maker shorting is exactly what has been going on with
Nutek, folks. Eventually the forces of good (that's us, guys), will
overcome the forces of evil (the market makers). |
