From Yahoo board link:
When a market is heavily shorted like tdfx (2.6 M shorted shares in 10M float market), what is "normal" bid/ask behavior gets altered (influenced) by the changed motivations of the trading participants. Now there still may be be numerous (short-covering) buyers, but to get the business they put out lots of "want ads" that show a buying interest but only at a lowering price than what is being offered.
Thus, you will often see a sale at the bid price and then the bid will be lowered, as if the only people wanting to buy this dog are less and less willing to give up good money for it. Sales at the offer price, or at a negotiated in between the bid/offer price become rarer, but when made the bid price is often lowered. This is because the purchaser's (shorter's) primary motivation is to buy shares, yes, but at the lowest price the can get them at.
What also happens is that these "differently-motivated" MM's will have a stockpile of the stock and they will sell these shares to each other (back and forth) at the bid price or lower. In this way they can actually create a falling market, that results in a lowering price, frees up sellers willing to duck out, and of course gets them their covering shares at lower prices.
Eventually, if they dry up the pool of shareholders willing to sell, they allow the price to rise a bit (by staying off the bid for a while) and then lower the boom again (shaking the tree); or simply keep pounding the stock down using the 2 basic techniques above to free up more scared sellers. Of course, if shareholders refused to sell or called in their certificates the short positions would be in deep do-do. But that rarely happens because of the lack of organization among shareholders. (It takes less effort to sell or sit back and blame the company, than to actually do something and try and organize with other investors.)
All the above works best in a lightly-traded market, where there is believable doubt that can be created about the prospects of the underlying company, where good news can be contested, and where big buyers are unlikely to jump in and be a "fly in the ointment" of the above carefully-orchestrated trading activities.
In sum, look for buying at the bid, light trading, the size of the short position, consistent downward price walking behavior, shaking of the tree price behavior, etc. You know, look for a lot of the things we have been seeing on this stock over the last 3-4 months. This indeed has been a good learning experience for me. I plan on using my lessons to make a lot more money in the future with the knowledge gained.
The only reason I have continually banged away at trading behavior as the cause of the price fall is because all the board discussions were looking for the cause of the fall in numerous places outside of the market. My main point remains that this short-term price fall is most likely (and largely) trader-induced.
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