What you are about to read (a bit lengthy) is strictly my opinion and not written for the purpose to tout or convince anyone to trade in any security. This is just something that I feel has backed fired on some MMs in OTC stocks due to what we have been witnessing in the trading the past few days on certain stocks.
The savvy long-term investors never chase stocks up. For the most part that is momentum and day traders where most of it or what follows is dumb money. Instead the long-term investors use a couple of simple strategies in order to position ourselves. One is find a stock no one immediately sees has massive potential and accumulate. Long-term investors are not interested in trading against the public mind or the dumb money. I know that's where the majority of the money can be made but even more can be made if the base of a security is held extremely strong by investors and not traders. However the second is not to doubt the DD which is the underlying basis for going long and holding. More and more the investors are winning now a days despite all the bashers that float through the internet.
For over 3 years, I have been investing, trading and learning to the point I do not feel the OTC MMs use fundamental nor technical analysis at all. However, what they do realize is a lot of dumb money does use this newest nitch charting or TA (Technical Analysis) to run a stock either up or down depending on the charting guru?s agenda. To the MM this is like taking candy from a baby. Simply they will paint the tape and use whatever tactic to affect the charting bands. Thus the public and dumb money they will have eating out of their hands. Effectively the MM can show a strong stock growing weak by manipulating the close price in order to generate selling volume.
MMs I have learned in my studying and tracking stock structures follow a simple code of business when making a market in a stock especially an OTC. That is the level that stocks will seek that yields the most volume. Now this is very important because they make money on the volume buying at the ?bid? selling at the ?ask?. In other words, by making the market they are buying low and selling high. Now smart money adheres to that rule also and from my experience so do all the market makers. They could careless whether the stock is at $83 or at $0.23. All they care about is the action thus being able to sell stock at the offer (The high) and buy stock at the bid (The low). To increase their profitability they make the spread as great as possible on as many shares as they can especially if the volume falls off.
When they have mostly all "buy" orders, that's not the price that's going to yield the most volume. They need both ?Buy? and ?Sells? to get the maximum action. Remember MMs play the volume. If the volume decreases and there are mostly ?Buys? that becomes a one way volume, ?Buy? volume. So what they do is let the stock run up to a price where it runs out of steam. They fill all the buy orders there that they can and then comes the pullback one way or another naturally or induced. During the pull back they can buy tons of shares and flip them to those averaging down or trying to catch the bounce. At some price, the stock will be relatively stable and yield the most volume. Now that is the ?weighted price? you will see. Please understand the ?weighted price? isn't any type of information Long-term use.
All I am saying is the ?Weighted Price? is the point where a stock seeks a level where MMs can profit on the most volume. SO during the day that is the price that MMs and momentum/day traders want to see the stock at. Why? Because they know the public and dumb money was chasing the price thing up. Most of the time, the MMs love a flurry of Market Orders which is a dead sign of an artificial run or momentum. Merely it is money in the bank for them. Most get hung in a momentum or day trade or by the tactics of Market makers, who are in the business to screw the public every chance they get and the NASD is not going to do anything about it. They are merely making the market liquid is there reasoning.
The market makers have created an added complication to the OTC chaos of the already volatile intra-day price movements created by dumb money, momentum and day-traders. MMs can not relate to long-term holders in the OTC. That makes absolutely no sense what so ever. They feel a large percentage of trades in the OTC market consist of short-term or day-trades, MMs merely view the barrage of buy and sell orders as relatively neutral to the market. How they figure it is when the average dumb money buys shares in a company, the MMs feel or rather know with some certainty it is very likely that dumb money will want to sell back those shares relatively quick on the slightest drop.
Now somewhat comfortable with this logic the MMs merely short sells into the buying and attempts to take the stock down in an effort to "shake out" the weak. Since it is tough to know for sure whether a move is the beginning of a trend, or a routine shake out, this type of deception works quite well for the MMs. What the long-termers do to a stock is surprise the MMs because instead of falling the shorting has no effect and the price goes up. Now that puts the MM at selling low through shorting and thus having to buy high in order to cover.
Boy, when this happens, the MMs are not very happy campers. The investors and traders are supposed to be doing that no them.
Now it becomes time to pull out every trick and tactic in the book in order to attempt to get a ?Bear Raid? at every dollar mark or percent from where the stock started. Could be a penny in smaller priced securities. What MMs do is give you a chance to make a small amount of money for your momentum and day trading style by shorting it at these levels and trying to get a bear raid each time. Each failure is compounding the MMs short position so they let it go to the next level. Now come more deliberate tactics MMs use to coerce ?Bear Raid? or panic selling.
Once the MM is caught short and the strength of the buy is overpowering the MM will want to cover his short position. So the MM calls up one of his friendly MMs and says some like "the weather is sure rough today." The MM along with the other "friendly? MM initiate a down tick about the same time. Now this can also be done with a certain amount of shares such as an infamous 100 shares flag. This down tick gives the illusion of weakness designed to hopefully begin the bear raid of selling. The fickle, fearful, day trader, momentum and short term begin to sell out allowing the MM to cover his short position at lower prices. They will move it down quickly to get it to a price of least financial damage. Problem they have is long-term investors in the OTC. They start accumulating and buying comes flying in when they take it too far thus the MM took it to the point of volume again and not only investors the other MMs step in the make money on the spread. MM Greed by the non friendly MMs.
Alas the poor MM does not get to cover. Now comes various tactics like stalling, boxing, or even locking the ?Bid? and ?Ask? for a while.
Of course MMs aggressively deny any sort of collusion designed to fix quotes or spreads, but a recent SEC investigation tells another story which they released on December 12, 1999. Message 12264558
Undeclared short-selling and market maker collusion are two very important topics I feel the SEC will analyze and investigate in the future. Not to mention they already brought charges against JOSE biz.yahoo.com & even rumors of NITE & the SEC Message 12627968 or even January 11th news release by the SEC sec.gov
Gosh, I stay up late reading the internet to learn and boy what you can learn.
Now it is not my intent to show anything but the old saying the more you know your opponent, the better prepared you are for their tactics. MMs have a vast resource of tactics and it would take probably more than my lifetime to figure them all out.
So how do investors somehow manage to overcome the obvious deception in OTC arena? One answer is indirection trading style by going long which the MMs do not expect. In the war between investors and companies on the OTCs vs the MMS, if the MMs have all the advantages due to position or other factors, direct confrontation such as momentum or day trading hitting the stock is a definite death sentence.
Nowever, an indirect approach tends to weaken the path of least resistance before slowly overcoming it. The most effective way is long-termers slowly accumulating and holding thus drawing the MMs out of its defenses making them as naked as their short position. This is war so this slow accumulation and holding for the long term easily achieves the desired effect to force MMs to cover and knock off the tactics or bury themselves deeper.
The MMs when caught will especially use every trick and tactic in the book to get a Bear Raid thus playing on the individual fear of most people. The MMs feel they have information and position advantages over the investors as long as the holding of the stock is in weak hands or short term holders. Since it is an OTC MMs feel the stock is BS and management is ineffective regardless what is happening within the company. Furthermore, MMs know they are in the position to impose a great deal of influence in OTC:BB stocks trading when it suits their needs.
This inherent power of position enables the MMs to move the markets at any time up or down. As a result, the only way to draw them out of their favorable position is going long. Now this does not mean just any company but to effectively nail the MMs, Longs must find the great company on the floor and accumulate long before the MM tactics and games begin.
This requires extensive research to find such a rare stock, but once you have found it, you are one up on the MMs so be prepared for every tactic in the book.
I have never seen or witnessed what I am seeing on CBQI in my three years on line. The timeline is showing an increase oversell daily and thus the volume is low as the MMs use their various tactics including not filling orders. Eventually, they will have to do something and covering is the absolute last thing they will consider.
Going to bed but thought I would write this and it is my opinion and my three years on line trading is the underlying basis to it but hey I could be wrong.
:-)
Gary just learning, researching and voicing an opinion... |
