****A must read about share counts and short squeezes,*************
Not just CVIA but any time you hear the words "short squeeze" 99% of the time they are the OTC version of a snipe hunt.
I know our Market makers are NOT flush with CVIA shares, but I hope we never get the label short squeeze either, see we will be distributing divs on a regular basis this alone will keep our MMs on a short leash.
Lets not start "short squeeze" rumor with CVIA because it would artificially inflate our prices, then crash again. Then we would have a bunch of PO'ed new investors.
Here is how a Market Makers like to work.
MM don't care about the fundamentals of any given OTC stock they are making market on. They just try to make as orderly market as possible. It's very easy for a MM to get short in handling in a stock that has suddenly gotten a big volume jump.
MM's are wholesalers this means they rely on orders from retail brokerages (your stock broker.)
If a retail firm as big as DLJ (or some of these other clearing houses) goes to the market maker, and expect to get an execution from any market maker giving quotes.
If the MM turns them down, or only gives a partial then the retailer will go to another MM. If MM#2 fills the order then that retailer will continue to go back to MM#2 for that stock at least until they fail to fill orders like MM#1 did.
Retail firms do always go to the lowest quote for a buy order or a sale order. They go to who they think is most capable of executing the order, with the expectation that the MM will match the best offer.
The MM will execute or they will not be getting as many orders which means they are making less money.
I will bet you MM's are short on 50% of any OTC stock, so lets use CVIA's last run up and how that MAY HAVE HYPOTHETICALLY played. One day we are at .25 bid .50 ask. Orders come into one of the MM's to Buy at .50 for a thousand shares. Being favored by the retailer that MM may not have had any inventory, but filled the order anyhow and is now short 1,000 shares.
The MM may raise his bid hoping to find a seller to cover his sale to the retailer. While he is messing around with low balling the bid and trying to cover a 100 shares he just sold, new buyers have come in and bought all the .50 ask prices. Now the stock is .50 bid .75.
Uh oh here comes that retailer again (the same one he just sold that 1,000 shares) at .50 with another order for 1000 at .75. The MM does the sale. Now he is short 2,000 at an average of .625.
The market keeps moving and now its .75 bid 1.00 offered. Here is where things will start getting interesting.
MM's rarely take losses. Almost everytime the MM will quit trying to cover and just follow the momentum. They may sell 2000 at 1.00 making them short 4000 but with an average .81.
The MM has the hook baited for a seller at .75 so he can cover his short and make a couple of $. (If they can at this point)
But if buying pressure keeps moving up. Now it is $1.00 to $1.25 and the retailers are at 1.25. The MM fills the order so now needs to buy 4,000 at 1.25 to keep his break even point above the bid. being short 8,000. The Market Maker moves up to 1.25 bid 1.50 Here comes the retailer again for 8000 . Now the MM is short 16,000.
So this continues on stock keeps moving up.
By now the MM realizes there is something not right about all this trading and may continue moving the stock up.
(A Typical example)
But our MM realizes something is rotten in Denmark, this particular stock went from down trend to a 300% gain in a very short time.... its about time to find out why, so they start checking the news wires, if nothing there then the internet boards and then Wa Lah there is the reason for the run up there is XXX on SI hyping the stock for whatever reason. Well the MM is a wily type being short, he knows a hype job when he see's one so kicks back and keeps filling buy orders while ol XXX and his cronies hype and hype and hype. The MM knows the hyping will soon end and the selling will start and he can really make a killing covering his short... Easy as shooting fish in a barrell <g>.
Finally the market closes for the day and our MM is short 40,000 shares, his break even is $1.75 the MM size up the hype and the volume, thinking the hypsters are ready to bail. So now our MM starts figuring a way to motivate some sellers so the MM can cover this short.
Our MM probably realizes the other MM firms are in the same boat as his firm so he gets on the phone to them and does a few "chinese food orders" (MMs way of getting coordinated) they collectively decide to
open the stock up the next morning with a tight spead, and hold it during the next trading day... thus increasing our MMs short to 80,000 shares at a break even of $2.00 (for example)During the day the MMs notice the volume and hype is starting to cool off and may walk the price down a little then have it bounce back, just pick up a few sales above their break even point and then let the stock peak.
The next morning (trading day #3) The MM's open the stock higher but with a big spead. $2.00 over $1.50 for example this slows down the buying. In fact the MM is betting this will signal the end of the run to the hypsters and day traders, who are content with their 250% prfits and then you start seeing waves of selling at $1.50 $1.63 ect ect, Well the MM is only to happy to buy these shares and cover his $1.75 break even, once this is done the MM doesnt care what happens a price crash is in their best interests so they can replinish their inventory.
Another way is by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon. Hopefully after doing this for several days, it will demoralize the buyers. The volume will dry up and the sellers will start coming around taking profits and moving on to another stock.
MM's hardly ever cover when you have a super heated volume either going up or down (if they are short.) The MM will do naked positions all day long. Then try to cover any short positions after the interest and volume in the stock has passed.
*** This is what you are currently seeing, MMs covering, for instance yesterday, we had more CVIA buys than sales yet our price went down.
You guys following the hypsters, market gurus and momentum traders, be careful, if you think like the above mentioned example and take trading notes on the MM signs you wont get burned very often other wise you will be one of those left holding the bag.
KAA |
