Here's some commentary from an e-mail subscription that I somehow am subscribed to. It talks of the tricks by shorts. It is interesting because I've noticed the same type of pattern on Osicom (maybe just coincidence). Read it and see...perhaps you can even use it to your advantage.
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TRADING AND INVESTING 101
In our ongoing focus to educate our readers, we think it is an
opportune time to introduce you to a term used in the securities
industry that has a great deal of pertinence right now:
Mark to the Market.
Ever notice that a stock that you have a position in seems to always
lose with a last trade on the bid side of the market or the last day of
the trading month it seems to get the hell kicked out of it?
This practice (completely against the rules, by the way) used
aggressively by short selling groups allows them to have paper gains
(which we have explained are the same as the real thing for brokerage
firms since they can spend paper gains with credit facilities and can
use the equity to trade against) looks something like this:
The people that short the small stocks are typically broker-dealers.
the reason they are the main players is that they have different sets of margin requirements for shorting stocks than you and I do. In the
case of a non-reporting company, a great deal of BD's have a ZERO
margin requirement. Why? The NASD allows them to short a great deal of
shares for the excuse of "maintaining an orderly market".
Anyhow, you have John Trader with ABC brokerage who has shorted 200,000
shares of an OTC bulletin board stock from about $1 on down. When he
covers this short at a profit, his brokerage firm pays him out a profit
sharing bonus of between 30 and 50% of the gain he made. (nice, huh?)
Well, the firm has to file a financial report quarterly, so it is
important that the positions it carries look as good as is possible.
So, each day he sells another 1000 shares short at the prevailing bid
price - making the stock look as bad as possible - to "keep up
appearances", and sells blocks of stock at the end of each month (to
further depress prices) and even more at the quarter end.
This sure sounds bad, doesn't it? Not really. An educated investor can
watch the trading in a small stock and see the short do his dirty work.
In the case of a squeeze situation he can tell when the "buying to
cover" is occurring.. which brings us to something we saw happen late
in the day Friday in one of our favorite small stocks, CWIT.
The stock did absolutely nothing all day long. In hindsight it is
obvious that someone was waiting around hoping some selling would drift
into the stock since he had some scrambling to do. Well, low and behold
the last 20 minutes of trading brings 96,000 shares in buying (covering
obviously) and no price change. What is that all about?
Simple: the short got someone to sell him some stock so he could
deliver some of the shares that are being "transferred and shipped" -
you folks better be some of that. Guess what the good news is: The bone
head who shorted him the stock WILL ALSO HAVE TO COVER.
On a basic trading level alone we think CWIT should pop. As long as the
crowd continues to demand delivery of their shares we could see an
ongoing game of "hot potato" - passing this short from player to player
all the way up. As we have said at least a dozen times, we feel that
both DYNA and CWIT are great long term, speculative investments. This
does not mean they are perfect, and they are definitely not trading
vehicles - so use your own common sense in buying these . (I hope I
don't need to tell you not to put 100% of your baby's college fund in them)
ORDER OUT YOUR SHARES LADIES AND GENTLEMEN!!
We think this week could be volitile and profitable fo
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