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Microcap & Penny Stocks : TGL WHAAAAAAAT! Alerts, thoughts, discussion. -- Ignore unavailable to you. Want to Upgrade?

To: Wayne Rumball who wrote (45693)	5/4/2000 7:49:00 AM
From: wayne	Respond to of 150070

FOUND THIS OVER ON RB. By: genetrader Reply To: 537 by UltimateWarrior Wednesday, 3 May 2000 at 9:51 PM EDT Post # of 564 STANDARD MM TACTICS... All of the tactics presented below, unless otherwise noted, are only SOMETIMES employed by market makers to influence the stock price in a favorable way for themselves. I give these strategies only as examples of things to watch out for, and the strategies I refer to are used in ACTIVE NMS stocks, not OTC BB's, though they could be. Keep in mind that nothing stated here is fact in any case, and that MM's take tremendous risk when trying to earn their livings. As I have stated it is a difficult, cutthroat competitive business. You never know when your last trade really is your LAST trade. The most common tactic for an MM is called 'leaning'. When an MM has shorted stock and would like to see the price lower he simply joins the offering or makes a new low offering. The idea is to scare weak hands to sell and drive the price lower. He might put out an ECN on the bid for himself while 'leaning' on the stock. The problem with such a tactic is that many savvy daytraders recognize such tactics and enjoy driving the prices up in the face of these MM's. Thus the MM is obligated to sell even MORE on the offering he has shown in his attempt to buy the shares back. The opposite of leaning we can call 'supporting' for our purposes here and this would be when the MM is long. He joins the bid and the opposite would apply. NOTE: An ILLEGAL tactic which the SEC has been cracking down on is called 'spoofing'. Spoofing is when an MM goes bid to buy the stock (he legitimately is a buyer) or offered to sell the stock (he is a real seller) and then puts out a large block of stock on an ECN to scare daytraders and others 'into him'. The idea is that when the MM is a seller, the 90,000 shares he flashes on the bid will scare the shorts into buying from him. This has been banned by the SEC and they will investigate this type of activity, especially if they are notified of particular instances. I suggest if you see such activity you notify the NASD via the www.nasdr.com website, or phone the SEC whose number is on their website. Another common tactic MM's use is simply to fade strength and buy weakness. It sounds simple and it is more of a trading strategy than a tactic used to cover a position. The idea is that when you have that type of frenzied move on either side (buying or selling), it is ALWAYS overdone. By simply scaling into these moves the MM is doing his job by providing liquidity, and at the same time building position. When the tide turns he will quickly jump to the other side (bid/offer) and scale the position out the opposite way. Obviously this does not always work, and the way some of the internet stocks trade they have very little 'pullback' in their ferocious up-moves. Thus it can be a dangerous game to play with those stocks. Another common tactic you will see is how it appears that MM's drive stocks toward round numbers. This happens many times because large customers (usually hedge funds and institutions) place block orders at these levels. Sometimes what the MM is doing when you see this type of activity is preparing to 'take down' a block of stock. For example, the customer (the fund) will give the MM the order to sell 500,000 shares at a limit of 50 when the stock is at 50 3/4. The MM will sell everything down to 50 (or unless he runs into a size buyer along the way). Knowing that he has just moved the stock down 3/4 the MM will print the customer at his limit of 50(all these customers want is the block of stock taken off their hands - they EXPECT the MM to try and profit on the order but they also know the MM will be going at risk). In most cases the MM will have positioned a large portion of this order (sometimes more than half - that would be 250,000 shares). If they have done their technical analysis right and the customer is not 'out in the street' with additional shares, or there are no other size sellers out there the MM might make some money on this position. However, the risk is that the stock, already under pressure, slides even lower and the MM is bagged with an awful position. The tactic of moving toward round numbers is mainly what many traders refer to as a kind of 'magnetism'. If you watch charts of very heavily traded stocks they usually do not slice through round numbers right away, but rather bounce off of them a few times, or slide through them slightly and then be 'magnetized' back. This is usually due to the abundance of limit orders place at the round number. What happens is either MM's will step in front of the size they have (totally legal - in other words they have 100,000 to buy at a 50 limit so they go to 50 1/16 knowing that the stock will probably not get through 50) and take a position there. Then they will sell into the minor rally off of that level (at say, 50 3/16 or 50 1/4). Again, this is all part of trading and when the MM steps in front of the 50 limit order he is actually HELPING the market. Why? Because he is giving the panic sellers a better price (50 1/16). Now, by no means am I saying this is a noble act. Clearly, it is not and this is the kind of information that Ken Pasternak was refering to in his WSJ interview article. However most savvy daytraders take advantage of this situation the same exact way. And let me state again that while this may appear to be an unfair advantage that an MM has (the ability to see his order 'book' and its depth), MM's of this size (meaning the order magnitude) usually have auto-ex such as NITE's. This automatic execution system is notorious for hammering traders in extreme situations, as I have noted in past posts. Thus, there is a tradeoff for this type of info I suppose. One final strategic note will be a warning to those of you who 'follow' what the two biggest MM's on the street do, namely what Goldman Sachs or Morgan Stanley are doing. These two firms KNOW that they are the most powerful entities on the NASDAQ exchange. Their moves around the bid and offer cause a lot of fanfare, especially among novice daytraders. I am certain that they use this knowledge to their advantage, and I cannot blame them. Knowing that their every move is scrutinized they will sometimes make a 'head fake' before they do what they need to do. In other words GSCO (Goldman) goes high bid. Daytraders seeing this immediately start taking out the offerings because it appears Goldman is a buyer. Within a few seconds GSCO flips to the offering and is down from the bid. Now he proceeds to sell to the street in the face of the initial buying surge he created. GSCO has not done anything illegal. He may have even been a buyer and than quickly 'caught' a sell order and reversed himself. Whatever he is doing is irrelevant. My point is that these firms have such a big influence on stocks that you need to be careful in trading against their every move. For most of you veteran daytraders who watch Level II screens none of the above is new to you and is probably trite and boring. However I hope that enlightened some newbies and informed those of you who were just interested in the trading wars that go on every day in every stock. Please feel free to ask questions or insult me in a witty, intelligent manner. I look forward to everyone's responses. All the best, -- Gene