OT required reading:
George Chelekis' HOT STOCKS REVIEW ## Copyright 1996 HOT STOCKS
CONFIDENTIAL ESSAY By George Chelekis * April 21, 1996
THE DEADLY ART OF STOCK MANIPULATION....
In every profession, there are probably a dozen or two major rules. Knowing them cold
is what separates the professional from the amateur. Not knowing them at all? Well,
let's put it this way: How safe would you feel if you suddenly found yourself piloting (solo)
a Boeing 747 as it were landing on an airstrip? Unless you are a
professional pilot, you would probably be frightened out of your wits
and would soil your underwear. Hold that thought as you read this
essay because I will explain to you how market manipulation works.
In order to successfully speculate, one should presume the
following: THE SMALL CAP STOCK MARKETS PRIMARILY EXIST TO FLEECE
YOU! I'm talking about Vancouver, Alberta, the Canadian Dealing Network and the US
Over-the Counter markets (Pink Sheets, Bulletin Board, etc.). One could also stretch
this, with many stocks, to include the world's senior stock markets, including Toronto,
New York, NASDAQ, London, etc. The average investor or speculator is not very likely
to have much success in the small cap crapshoots. I guess
that is what attracted ME to these markets. I have been trying, for
quite some time, to answer this question, "How come?" Now, I know. And you should,
too!
By the way, the premise of these books is uniformly: "While these speculative
companies do not actually make any money, one can profit by speculating in these
companies." THAT is the premise on how these markets are run, by both the stock
promoters, insiders, brokers, analysts and others in this industry. That logic is flawed in
that it presumes "someone else" is going to end up holding the dirty
bag. Follow this premise all the way through and you will realize the
insane conclusion: For these markets to continue along that route,
new suckers have to continue coming into the marketplace. The
conclusion is insane in that such mad activity can only be short-lived. I disagree with this
premise and propose another solution (see my
earlier essay: A Modest Proposal) at the end of this essay. What the professionals and
the securities regulators know and understand, which the rest of us do not, is this.
"RULE NUMBER ONE: ALL SHARP PRICE MOVEMENTS --
WHETHER UP OR DOWN -- ARE THE RESULT OF ONE OR MORE
(USUALLY A GROUP OF) PROFESSIONALS MANIPULATING THE SHARE
PRICE."
This should explain why a mining company finds something good and "nothing
happens" or the stock goes down. At the same time, for NO apparent reason, a stock
suddenly takes off for the sky!
On little volume! Someone is manipulating that stock, often with an unfounded rumor. In
order to make these market manipulations work, the
professionals assume: (a) The Public is STUPID and (b) The Public
will mainly buy at the HIGH and (c) The Public will sell at the LOW. Therefore, as long as
the market manipulator can run crowd control, he can be successful.
Let's face it: The reason you speculate in such markets is that you are greedy AND
optimistic. You believe in a better tomorrow and NEED to make money quickly. It is this
sentiment which is exploited by the market manipulator. He controls YOUR greed and
fear about a
particular stock. If he wants you to buy, the company's prospects look like the next
Microsoft. If the manipulator wants you to desert the sinking ship, he suddenly becomes
very guarded in his remarks about the company, isn't around to glowingly answer
questions about the company and/or GETS issued very bad news about the company.
Which brings us to the next important rule.
"RULE NUMBER TWO: IF THE MARKET MANIPULATOR WANTS
TO DISTRIBUTE (DUMP) HIS SHARES, HE WILL START A GOOD NEWS
PROMOTIONAL CAMPAIGN."
Ever wonder why a particular company is made to look like the
greatest thing since sliced bread? That sentiment is manufactured.
Newsletter writers are hired -- either secretly or not -- to cheerlead a stock. PR firms are
hired and let loose upon an unsuspecting public.
Contracts to appear on radio talk shows are signed and implemented. Stockbrokers
get "cheap" stock to recommend the company to their "book" (that means YOU, the
client in his book). An advertising campaign is rolled out (television ads, newspaper
ads, card deck mailings). The company signs up to exhibit at "investment conferences"
and "gold shows" (mainly so they can get a little "podium time" to hype you on their
stock and tell you how "their company is really different" and "not a stock promotion.")
Funny
little "hype" messages are posted on Internet newsgroups by the
same cast of usual suspects. The more, the merrier. And a little "juice" can go a long
way toward running up the stock price. The HYPE is on. The more clever a stock
promoter, the better
his knowledge of the advertising business. Little gimmicks like "positioning" are used.
Example: Make a completely unknown company look warm and fuzzy and appealing to
you by comparing it to a recent success story, Diamond Fields or Bre-X Minerals. That
is the POSITIONING gospel, authored by Ries and Trout (famous for "Avis: We Want To
Be #1" and "We Try Harder" and other such
slogans). These advertising/PR executives must have stumbled onto this formula after
losing their shirts speculating in a few Canadian
stock promotions! The only reason you have been invited to this seemingly incredible
banquet is that YOU are the main course. After the market manipulator has suckered
you into "his investment,"
exchanging HIS paper for YOUR cash, the walls begin to close in on
you. Why is that?
"RULE NUMBER THREE: AS SOON AS THE MARKET
MANIPULATOR HAS COMPLETED HIS DISTRIBUTION (DUMPING) OF SHARES,
HE WILL START A BAD NEWS OR NO NEWS CAMPAIGN."
Your favorite home-run stock has just stalled or retreated a bit from its high. Suddenly,
there is a news VACUUM. Either NO news or BAD rumors. I discovered this with quite
a few stocks. I would get LOADS of information and "hot tips." All of a sudden, my
pipeline was shut-off. Some companies would even issue a news release
CONDEMNING me ("We don't need 'that kind of hype' referring to
me!). Cute, huh? When the company wanted fantastic hype circulated hither and yon,
there would be someone there to spoon-feed me. The
second the distribution phase was DONE....ooops! Sorry, no more news. Or, "I'm sorry.
He's not in the office." Or, "He won't be back until Monday."
The really slick market manipulators would even seed the Internet news groups or other
journalists to plant negative stories about that company. Or start a propaganda
campaign of negative rumors on all available communication vehicles. Even hiring a
"contrarian" or "special PR firm" to drive down the price. Even hiring
someone to attack the guy who had earlier written glowingly about the company. (This is
not a game for the faint-hearted!)
You'll also see the stock drifting endlessly. You may even experience a helpless feeling,
as if you were floating in outer space
without a lifeline. That is exactly HOW the market manipulator wants
you to feel. See Rule Number Five below. He may also be doing this to
avoid the severe disappointment of a "dry hole" or a "failed deal."
You'll hear that oft-cried refrain, "Oh well, that's the junior minerals exploration
business... very risky!" Or the oft-quoted statistic, "Nine out of 10 businesses fail each
year and this IS a Venture Capital Startup stock exchange." Don't think it wasn't
contrived. If a geologist at a junior mining company wasn't optimistic and rosy in his
promise of exploration success, he would be replaced by someone who was!
Ditto for the high-tech deal, in a world awash with PhD's. So, how do you know when
you are being taken? Look again at Rule #1. Inside that rule, a few other rules unfold
which explain how
a stock price is manipulated.
"RULE NUMBER FOUR: ANY STOCK THAT TRADES HUGE VOLUME AT HIGHER
PRICES SIGNALS THE DISTRIBUTION PHASE."
When there was less volume, the price was lower. Professionals were accumulating.
After the price runs, the volume increases. The professionals bought low and sold high.
The amateurs bought high
(and will soon enough sell low). In older books about market manipulation and stock
promotion, which I've recently studied, the markup price referred to THREE times
higher than the floor. The
floor is the launchpad for the stock. For example, if one looks at the stock price and
finds a steady flatline on the stock's chart of around 10 cents, then that range is the
FLOOR. Basically, the markup phase can go as high as the market manipulator is
capable of taking it. From my observations, a good markup should be able to run about
five to ten times higher than the floor, with six to seven being common. The market
manipulator will do everything in his power to
keep you OUT OF THE STOCK until the share price has been marked up by at least
two-three times, sometimes resorting to "shaking you out" until after he has
accumulated enough shares. Once the markup has begun, the stock chart will show you
one or more spikes in the volume -- all at much higher prices (marked up by the
manipulator,
of course). That is DISTRIBUTION and nothing else.
Example: Look at Software Control Systems (Alberta:XVN), in which I purchased
shares after it had been marked up five times. There were eight days of 500,000 (plus)
shares trading hands, with one day of 750,000 shares trading hands. Market
manipulator(s) dumping shares into the volume at higher prices. WHENEVER you see
HUGE volume after the stock has risen on a 75 degree angle, the distribution phase
has started and you are likely to be buying in at or near the stock's peak price.
Example: Look at Diamond Fields (TSE:DFR), which never increased at a 75 degree
angle and did not have abnormal volume spikes, yet in less than two years ran from
C$4 to C$160/share.
Example: Look at Bre-X Minerals (Alberta:BXM), which did not experience its first 75
degree angle, with huge volume until July 14th, 1995. The next two trading days, BXM
went down and stayed around C$12/share for two weeks. The volume had been 60%
higher nearly a month earlier, with only a slight price increase. Each high volume and
spectacular increase in BXM's share price was met with a price retreat and leveling off.
"Suddenly," BXM wasn't trading at
C$2/share; it was at C$170/share.... up 8500% in less than a year! In both of the above
cases, major Canadian newspapers ran extremely negative stories about both
companies, at one time or
another. In each instance, just before another share price run up, retail investors fled the
stock! Just before both began yet another run up! Successful short-term speculators
generally exit any stock run up when the volume soars; amateurs get greedy and buy at
those points.
"RULE NUMBER FIVE: THE MARKET MANIPULATOR WILL
ALWAYS TRY TO GET YOU TO BUY AT THE HIGHEST, AND SELL AT THE
LOWEST PRICE
POSSIBLE."Just as the manipulator will use every available means to invite you to "the
party," he will savagely and brutally drive you away from "his stock" when he has fleeced
you. The first falsehood you assume is that the stock promoter WANTS you to make a
bundle by investing in his company. So begins a string of lies that run for as long as
your stomach can take it.
You will get the first clue that "you have been had" when the
stock stalls at the higher level. Somehow, it ran out of steam and you
are not sure why. Well, it ran out of steam because the market manipulator stopped
running it up. It's over inflated and he can't convince more people to buy. The volume
dries up while the share
price seems to stall. LOOK AT THE TRADING VOLUME, NOT THE SHARE PRICE!
When earlier, there may have been 500,000 shares trading each day for eight out of 12
trading days (as in the case of Software
Control Systems), now the volume has slipped to 100,000 shares (or so) daily. There
are some buyers there, enough for the manipulator to continue dumping his paper, but
only so long as he can enlist one or more individuals/services to bang his drum. He may
continue feeding the promo guys a string of "promises" and "good news down the
road." (Believe me, this HAS happened to me!) But, when the news finally arrives, the
stock price goes THUD! This is entirely orchestrated by a market manipulator. You'll
see it in the trading volume, most of which is CONTRIVED. A market manipulator will
have various brokers buying and selling the stock
to give the APPEARANCE of increasing volume and price so that YOU
do start chasing it higher.
At some point during the stall stage, investors get fed up with the non-performance of
the stock. It drifts for a while, in a steady retreat, with perhaps a short-lived spike in
price and volume (the final signal that the manipulator has finally offloaded ALL of his
paper). Then, the stock comes tumbling down -- having lost ALL of
the earlier share appreciation. Sometimes, with the more cruel manipulators, they will
throw
in a little false hope... giving you a little more rope so they can better
hang you. Just after a severe drop, there will be a "bottom fishing"
announcement which sends the share price up a bit on high volume,
rises a little more after that and then continues to drift. Meanwhile, you keep getting
"shaken out" through a cruel drip-drip water
torture of the share price's slow retreat. Again, virtually every movement is completely
orchestrated.
"RULE NUMBER SIX: IF THIS IS A REAL DEAL, THEN YOU ARE LIKELY TO BE THE
LAST PERSON TO BE NOTIFIED OR WILL BE DRIVEN OUT AT THE LOWER
PRICES."
Like Jesse Livermore wrote, "If there's some easy money lying around, no one is going
to force it into your pocket." The same concept can be more clearly understood by
watching the tape. When
a market manipulator wants you into his stock, you will hear LOUD noises of stock
promotion and hype. If you are "in the loop," you will
be bombarded from many directions. Similarly, if he wants you out of the stock, then
there will be orchestrated rumors being circulated, rapid-fired at you again from many
directions. Just as good news may come to you in waves, so will bad news.
You will see evidence of a VERY sharp drop in the share price with HUGE volume. That
is you and your buddies running for the exits. If the deal is really for real, the market
manipulator wants to get ALL OF YOUR SHARES or as many as he can... and at the
lowest price he can. Whereas before, he wanted you IN his market, so he could dump
his shares to you at a higher price, NOW when he sees that this deal IS for real, he
wants to pay as little as possible for those same shares... YOUR shares which he wants
to you part with, as quickly as possible. The market manipulator will shake you out by
DRIVING the price as low as he can. Just as in the "accumulation" stage, he wants
to keep everything as quiet as possible so he can snap up as many of the shares for
himself, he will NOW turn down, or even turn off, the volume so he can repeat the
accumulation phase. In the mining business, there seems to always be another "area
play" around the corner. Just as Voisey's Bay drifted into oblivion, during the fourth
quarter of 1995 and early into 1996, the same Voisey Bay "wannabees" began striking
deals in Indonesia. Some even used new corporate entities. Same crooks, different
shingles. The accumulation phase was TOP SECRET. The noise level was deadingly
silent. As soon as the insiders accumulated all their shares, they let YOU in on the
secret.
"RULE NUMBER SEVEN: CONVERSELY, YOU WILL OFTEN BE THE LAST TO
KNOW WHEN THIS DEAL SHOWS SIGNS OF FAILURE."
Twenty-twenty hindsight will often show you that there was a "little stumble" in the share
price, just as the "assays were delayed" or the "deal didn't go through." Manipulators
were peeling off their paper to START the downslide. And ACCELERATE it. The quick
slide down makes it improbable for your getting out at more than what
you originally paid for the stock... and gives you a better reason for holding onto it "a
little longer" in case the price rebounds. Then, the
drifting stage begins and fear takes over. And unless you have serves of steel and can
afford to wait out the manipulator, you will more than likely end up selling out at a cheap
price.
For the insider, marketmaker or underwriter is obliged to buy back all of your paper in
order to keep his company alive and maintain control of it.
The less he has to pay for your paper, the lower his cost will be to commence his stock
promotion again... at some future date. Even if his company has no prospects AT ALL,
his "shell" of a company has some value (only in that others might want to use that
structure so they can run their
own stock promotion). So, the manipulator WILL buy back his paper. He just wants to
make sure that he pays as little for those shares as possible.
"RULE NUMBER EIGHT: THE MARKET MANIPULATOR WILL
COMPEL YOU INTO THE STOCK SO THAT YOU DRIVE UP ITS PRICE SHARES."
Placing a Market Order or Pre-Market Order is an amateur's mistake, typifying the US
investor -- one who assumes that thinly traded issues are the same as blue chip stocks,
to which they are accustomed. A market manipulator (traders included here) can jack
up the share price during your market order and bring you back a confirmation at some
preposterous level. The Market Manipulator will use the "tape" against you. He will keep
buying up his own paper to keep you reaching for a higher price. He will get in line
ahead of you to buy all the shares at the current price and force you to pay MORE for
those shares. He will tease you and MAKE you reach for the higher price so you "won't
miss out." Miss out on what? Getting your head chopped off, that's what! One can avoid
market manipulation by not buying during the huge price spikes and abnormal trading
volumes, also known as chasing the stock to a higher price.
"RULE NUMBER NINE: THE MARKET MANIPULATOR IS WELL
AWARE OF THE EMOTIONS YOU ARE EXPERIENCING DURING A RUN UP AND A
COLLAPSE AND WILL PLAY YOUR EMOTIONS LIKE A PIANO."
During the run up, you WILL have a rush of greed which compels you to run into the
stock. During the collapse, you WILL have a fear that you will lose everything... so you
will rush to exit.
See how simple it is and how clear a bell it strikes? Don't think this formula isn't
tattooed inside the mind of every manipulator. The
market manipulator will play you on the way up and play you on the way down. If he does
it very well, he will make it look like someone else's fault that you lost money! Promise
to fill up your wallet? You'll rush into the stock. Scare you into losing every penny you
have in
that stock? You'll run away screaming with horror! And vow to NEVER, ever speculate
in such stocks again. But many of you still do.... The manipulator even knows how to
bring you back for yet another play. What actors! No wonder Vancouver is sometimes
called "Hollywood North."
"FINAL RULE: A NEW BATCH OF SUCKERS ARE BORN WITH
EVERY NEW PLAY."
The Financial Markets are a Cruel, Unkind and Dangerous Playing Field, one place
where the newest amateurs are generally fleeced the most brutally.... usually by those
who KNOW the above rules.
Just as I have a duty to ensure that each of you understand how this game is played. |
