Here is the whole article. Great read I keep handy.
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books are out of date, the manipulations have been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 NEWS
PROMOTIONAL 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
oblivion,
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 him 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.
You can read more of the author writting at the hotstock
review. |
