All: A must read for all concerning the art of MM Manipulation.
I ran across this a short time ago and just recently saw it posted
again on another board. I thought it might be of interest to some
of you.
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The savvy long-term investors never chase stocks up. For the
most part that is momentum players and daytraders 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
themselves. One is to find a stock no one immediately sees has
huge potential and accumulate. Long-term investors are not
interested in trading against the public mind or the dumb money.
That's where the majority of the money can be made but even
more can be made if the base of a stock is held extremely strong
by investors. However the second is not to doubt the research
which is the underlying basis for going long and holding.
More and more investors are winning the game nowadays
despite all bashers that float through the Internet that has
become part of the game. Floor traders of market makers often
watch CNBC, news wires and bulletin boards in order to follow
the market during trading session. OTC BB market makers
(MMs) don't use fundamental and technical analysis. 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. To the MMs 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 MMs can show a
strong stock growing weak by manipulating the close price in
order to generate selling volume, delaying trading time to
manipulate trading activities, or even stalling the ask without
honoring orders to hold a stock price.
MMs follow a simple code of business when making a market in
a stock especially an OTC BB. 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 and
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, 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 become 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 average price you will see.The average 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 their reasoning.
The market makers have created an added complication to the
OTCBB's 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
BB. That makes absolutely no sense what so ever. They feel a
large
percentage of trades in the OTC BB 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 ampers.
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
MMs call up one of his friendly MMs and says some thing like
"the weather is sure rough today." The MM along with the other
"friendly MM initiates 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 BB. They start accumulating and buying comes flying in
when they take it too far thus the MMs took it to
the point of volume again and not only investors the other MMs
step in the make money on the spread.
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 January
11, 1999.
sec.gov
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 OTCBB arena? One answer is indirection
trading style by going long which the MMs do not expect. In the
war between investors and public companies on the OTC BB 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.
However, an indirect approach tends to weaken the path of least
resistance before slowly overcoming it. The most effective way is
long-term investors 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 they are OTC BB MMs who believe all OTCBB
companies are not worth investing 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.
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babe'
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