To: bob zagorin (2223 )
From: hiram rohira
Sep 18 1997 9:36PM EST
Reply #2224 of 2226
George Chelekis' HOT STOCKS REVIEW ## Copyright 1996
HOT STOCKS
CONFIDENTIAL ESSAY
By George Chelekis * April 21, 1996
TEL: (813) 251-0030 * FAX: (813) 254-4677
NOTE: I believe this may be one of the most important essays
on the financial markets which you will ever read. This essay will
be the lead article in Hot Stocks Review, Spring 1996 (Part Two). Up
until recently, I
knew that I was missing something, but I could not quite put my
finger on it. Now I
know what it is. The data which follows is only as good as you can
actually use it.
These are the cold, savage and ruthless facts of market manipulation.
I have not made
these up, but have dug them up out of out-dated, generally
unavailable books on Canadian market manipulations, and
pieced the rest together from observations, personal experiences and
conversations
with market professionals and insiders. While the
books are out of date, the manipulations have been passed down
from one generation to another. The only thing missing was
someone to supply you with what those tricks were so you can become a
more
educated speculator. Many thanks to Robert Shore and Vern
Flannery, of Market News Publishing, for finding and sending me
a copy of the book, "The Story Behind Canadian Mining
Speculation" by T. H. Mitchell, first published in 1957 by George J.
McLeod Limited;
also Ivan Shaffer's book, "The Stock Promotion Game." I have been
told that many of
these tricks are now illegal. If so, would someone please tell that
to the market
manipulators.
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 NEWSPROMOTIONAL 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 blivion,
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, YOU now have that same duty to
guarantee that your fellow speculator understands these rules. Just
as I would be a
criminal for not making this data known to you, YOU would be just as
criminal to keep
it a secret. There will always be an unsuspecting, trusting fool whom
the rabid dogs will
tear to
shreds, but it does NOT have to be this way.
IF every subscriber made this essay broadly known to his
friends, acquaintances and family, and they passed it on to their
friends, word of mouth could cause many of these market
manipulators to pause. IF this effort were done strenuously by
many,
then perhaps the financial markets could weed out the crooked
manipulators and the promoters could bring us more legitimate
plays.
The stock markets are a financing tool. The companies
BORROW money from you, when you invest or speculate in their
companies. They want their share price going higher so they can
finance their
deal with less dilution of their shares... if they are good guys.
But,
how would you feel about a friend or family member who kept
borrowing money from you and never repaid it? That would be
theft, plain and simple. So, a market manipulator is STEALING your
money. Don't let them do it anymore. Insist that the company in which
you invest be
honest or straight... or find another company in which to speculate.
Your money talks
in LOUDER volumes than any stock
promotion scheme. ALWAYS refuse any deal which smells wrong.
Refuse to tolerate the scams prevalent in the financial markets.
This can ONLY be accomplished by KNOWING and USING the
above rules. Thoroughly COMPLETE your due diligence on a company
before risking a dime. Dig up the Insider Reports to find out who is
blowing out their
paper, how often they are blowing out their paper and whatever
happened to their "last
play."
Begin to use this as YOUR rule of thumb: If the insider's paper
is really worthless, then avoid it. Find another's whose paper
DOES hold promise and honest possibilities. In these small cap stock
markets, you are
investing more in the INDIVIDUAL behind the
play, than the "possibility" of the play itself. Ask yourself before
speculating: Could I
lend this person $5,000 for a year and hope to get it back? If not,
then don't! Do it for
your own good and the good of everyone else who is so foolish as to
speculate in
these
financial markets!
The truly sane and only somewhat safe solution to all of this:
FIND GOOD COMPANIES IN WHICH TO SPECULATE AND
GET INTO THEM AT THE GROUND FLOOR LEVEL. Anything else is
criminal or stupid. This is a case where there really isn't a gray
area. It's either Black or
it's White. The company and its management are scamsters or they
really intend to
bring value to their shareholders.
COPYRIGHT (c) 1996 by George Chelekis. ALL RIGHTS RESERVED.
George Chelekis is not an investment advisor, money manager or
stockbroker (past or present). George Chelekis holds a
substantial position in Software Control Systems, prior to going to
press and may sell
part or all of his position without advance notice.
" |
