Hi surpow,
before one can begin to understand the machinations on the part of MM's, they have to understand the role that MM's play in the Markets.
1. they attempt to execute order's for their firms' customers.
2. TRADE FOR THEIR OWN ACCOUNTS!
3. Make a two-sided market.
4. MAKE MONEY!
If you noticed, I put 2&4 in Caps. This is very important because so many people I talk with seem to think MM's are presidential appointees with only one job, keep the markets orderly. WRONG! Take number two for instance, now what if you and I could have the access to the information these guys get and trade for our accounts, geez, give me a break. Remember this, anything that flows, whether it be oil or data can be controlled TEMPORARILY at the main point of exchange. This is the key, POINT OF EXCHANGE. People will tell you there is no manipulation in the markets because they are too huge. WRONG! Let me ask you this, how big is the U.S. oil market?, pretty huge right! All Saudi Arabia has to do is cut a 12 inch pipe off and watch the rise in oil prices and in reality they don't even have to do that, JUST RUMOR OF SUCH. The other thing to remember is TRADEABLE VALUE, in other words Closet Value means nothing at the point of exchange.
So QCOM has around 160 million shares outstanding and it is too big to be manipulated, WRONG. The only shares that matter are at the point of exchange shares that will trade that day period, the closet shares do not matter on a temporary basis, now long term, just as in oil, it does, but we are talking about the dynamics of a single day or morning etc.
The first order of the day is to make the initial market and that is determined by the amount of buying or selling pressure on a particular stock. The KEY here is how much do the Houses want to participate. If it is a desirable stock as decided by the MM's institution like a Merrill or Goldman then you will see more order. A good example is QCOM today as opposed to CMRC. Now keep in mind that it is not only desire to participate but also how much pressure will they have to tolerate in order to participate. In other words they do not mind buying shares to provide liquidity on a desirable stock like QCOM but bedamned if they are going to give away the store on a purely momentum play. That occurred yesterday because they had purchased enough shares at lower prices in the morning to keep QCOM in check for most of the day, then what happened? The shorts began to cover and they had to buy and what happened the Houses said to hell with it and refused to use their in house inventory to keep it down and the retail pressure took over. The same should happen today but probably on a much less scale because the first huge move always brings out the panic in the weak shorts. Now what has happened to CMRC? It is totally a momentum stock at this point and the Houses are pretty well abdicating their "two-sided market responsibility", they are not repudiated by the powers that be because there is no law that says they have to buy a damn thing, and if you think the large institutions are wholesale buyers of that stock, I for one do not believe it.
Getting back to your point though. I posted last night that I feel the Houses are beginning to lose control of the markets as evidenced by their irrational activity as witnessed on QCOM over the last few weeks. This was brought up on Ted David's show on CNBC last Friday when an analyst talked about this type of activity and especially the trick of " Placing the Sell " or what I have termed " making the show ". OK, if you are about to buy QCOM because of news the night before along with many others, what happens the next morning? 1. Tremendous retail pressure does what? Yes, it pushes the price higher and higher and what happens? The day traders, especially the SOES traders jump on the wagon with the retail buyers, and are now competing directly via ECNs with the Houses' MM's. THEIR ONLY CONTROL AT THIS POINT IS WHAT? Instill fear of a drop. How do they do it. Remember that market orders supersede limit orders. The bid and ask you see on THE STACK on Isld are limit orders. They can simply lower the ask a little at a time an the Stack will begin to follow, then with everyone on the defensive like the SOES traders they do a sudden drop and a quick buy at market and no one wants to get in the water all of a sudden. The key is not having enough shares in the show to hurt them. The other key is to execute the trades so fast the SOES traders cannot react to take advantage. The price falls, the fear is instilled and they can control it again up to a point. This is why you have seen QCOM up 15 and then in five minutes down 4. Now you can see why I say they are showing signs of losing control of the markets because certain powers that be are beginning to question this movement.
So, yes, there is manipulation. Remember number four, MAKE MONEY. Well it does not take a genius to see how much money can be made with their power especially rotating between Long and Short.
Voltaire |
