README.TXT
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Folks, let's not forget one important thing, that seemed to
have slipped from the threads. The MM's MUST cover shorts
BEFORE the symbol change! As we heard Me HAS filed and
it could happen REAL soon.
Do you not think the MM's know about this filing? It's called
a full court press and there isn't much time left in this game.
Rico has given a good overview of Market Makers ("MMs") and what
they do. I would like to take the time to further expand on
his thoughts and provide you with some ideas to better familarize
yourself with MM's.
First off, we hear a lot of people curse and complain about the
MM's and wish they were not here. Simple fact is that if they
were not here then there would be 0 volumne. So, we have to
put up with their ploys, it's part of the game.
Secondly, there is a huge difference between MM's in a OTC:BB stock
versus one in a Bluechip. In a BB stock the MM's tend to work
together maximizing profits on a) the spread b) shorts/runnups.
The MM's in a Bluechip tend to try and cut each other's throat.
MM's live off of the spread (mostly) in a Bluechip and try and
jump in front of other MM's when there is market depth on either
bid/ask side.
Next we'll talk about what happens when a stock has massive run-ups
in price. The MM's usually end up running out of stocks to sell
you so they have no choice but to short and hope to cover when
the dust settles because they are hoping to cover the stocks
over the next couple of days.
Let's take the last two days of ICVI as an example. We had
a 89% increase on Monday. More than likely the MM's are short.
Now MM's HILL and NAWE are most likely the most experienced
on the stock and most likely they have the deepest pockets.
How they both know that they had a nice runup and they are
predicting a short fall. The bell opens and they get 4:1 buys/sells and they lower the bid?!?! Not fair! Tough, they can do that.
But where is supply and demand figure in here? It doesn't apply
as normal logic would think it would. Remember, they are short
from the day before. The 4:1 continues for 2 hours but the stock
dropped 25%. The whole time they were covering the shorts and
picking up weak shares, because they will profit on both sides
of the hill. Remember, we can team up and create a strong
force, so can they. No MM wants to be caught holding too many
shares in a volatile market. Our stance is different then their's. We are liviing for the long term, they live for the day. We make
profits over time, they do over minutes. They look for "stop loss"
orders and chase them if it's worth it.
Ok, so the shakedown is going on. You put a "all-or-none" limit
order to buy 5 cents below the bid. More than likely you will
not get filled, because they want that to be a sell order not
a buy. Put in a limit order to buy at market and you will get
burned, especially when the bid/ask is 5x5 (500 shares x 500 shares).
All the weak hands have sold, and the MM's hold their shares. You
see the opportunity to increase your holding so you put in a
Market order for 10,000 shares. So the MM sells you 500 at a
time and raises the ask up with it. They just profited on the downfall of the stock and now they are profiting on the rise.
So remember, use limit orders to buy. These make for a nice
floor to spring from.
In the stock market, your gains is most likely someone's losses.
And nobody wants to lose, especially the MM's. Supply and
demand will apply when a float is controlled by investors and
not day traders. The more shares in weak hands makes for a
very volatile stock. MM's smell fear and will try to shake
the tree many times. They can't live off of the spread in a
penny stock, so they are looking for every opportunity to
make profit. It's not until the spreads becomes 3/8's will
they be satisfied with living off of the spread.
Now I hope everyone has a little better understanding about
Market Makers and what drives them. I do not profess to be
and expert here, and if someone finds any of the information
in error please let me know.
Cliff Daniel
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