something to read..
excellent stuff
ubject: STOCKS WITH ATTITUDE TEAM - FA/TA AND
EVERYTHING ELSE
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To: +sergio heiber (47 )
From: +Christopher Smith
Sunday, Dec 14 1997 12:51AM EST
Reply # of 388
I've been checking in on the 56 threads often during the past few
months, usually out of
curiousity more than anything else. I have just registered for SI,
thus no posts from me
until now. During the past few months several things about the
group's activity have
stuck out, and I wonder if some of you would respond to the
following questions. By
way of background, I will say that I am a marketmaker with one of
the largest
investment banks/trading houses in the world...since I do not want
to specify which
one, I will only say I work for either GSCO, MLCO, MSCO, or BEST. As
a result, I
believe I bring a certain degree of saavy and knowledge about the
issues (especially
regarding marketmaker activity) that some of you seem to think you
are qualified to
comment on.
1. I have been struck by this group's obsession with stocks in the
$1-$10 range. The
firm I work for has an extremely sophisticated, high-powered
technical analysis
department, and I know the value of good TA. Like your member "Doug
R", I
consider myself extremely competent in the area of TA and apply it
daily when
evaluating my proprietary positions and inventory levels. Anyone who
knows
ANYTHING about technical analysis knows that it is most effective as
a predictor of
future activity for stocks OVER $10. Applying TA to stocks under
$10, and especially
penny stocks under $5, is completely ludicrous. Just one of the
reasons for this is that
TA, on a basic level, attempts to identify trends in price activity
from which one can
profit. Stocks under $10 do not experience the consistent buying and
selling activity of
larger stocks. Example: as a marketmaker, I will have a customer,
such as a mutual
fund, come in one day and buy a large block of a $30 stock. The next
day, the fund
will buy another block. Often, that customer will be joined by
another, such as a hedge
fund...this usually goes on for days or weeks, since many of these
institutions identify
the same types of desirable stocks at the same time. This creates a
clear pattern in the
chart of the stock, which creates great trading opportunities for
those utilizing good
TA. These patterns almost NEVER exist in penny stocks, since most
activity in these
issues is retail and short term speculation, not institutional
activity. If you are a short
term trader, fine...just don't use TA to justify buying or selling a
penny stock to the
extent you would a more respectable one, because you'll be comparing
apples and
oranges.
2. Related to the above, I have found the recent unease about the
POW performance
somewhat amusing. During this past summer, when the market was
flying and many
penny stocks were doubling and tripling in a few days/weeks, many of
you credited
your team's TA/FA research for finding such incredible gems. Well,
there were a LOT
of gems this summer and fall. Now that the market has turned over,
some of you are
blaming "market volatility" for your losses, not your TA and
research. That's one of the
problems with technical analysts in general...they have very
selective memories and
take credit for, and remember, the successes only.
3. Related to point #2, I've noticed that some posters on the 56
threads have become
disenchanted with this concentration on penny stocks. Has anyone
besides me thought
that maybe the penny stock emphasis arose because some of the
thread's more
frequent posters realized the impact of a "pick" would have much
more effect on a
low-float, low-price issue than it would on a stock like Microsoft
or Intel? Has anyone
thought that maybe you were buying from another poster on the board
who was
selling--someone who knew what the POW was and got in at the open?
There is one
member of your sponsoring team who admits to being a short term
trader....short term
meaning hours, not days. Have any of you ever realized the absurdity
and intellectual
dishonesty of picking a stock based on TA and FA, calling it a
"great pick for
long-term investors", then buying and selling it in a matter of
hours after the short term
POW buying effect has worn off? Anyone else ever wonder exactly how
many people
know what the POW will be, and when it is purchased by those people?
I saw this
issue raised a few months ago on the 56 thread, and that poster was
ignored.
4. Point #3 brings me to the following: anyone who buys or sells a
stock based on
internet postings is asking for whatever comes to him or her. It's
painfully obvious that
many people are buying these POWS based solely on the "advice" they
read here, and
then watch in dismay as they lose half their money in the BOSCF's,
RLLY's, LUNN's
and MLOG's, among many others. That's ridiculuous. It's also
indicative of a
speculative mania that makes my business stunningly profitable.
5. I find the obsession with marketmaker activity, both here and on
other SI threads,
highly amusing. What MM is on what bid, who is on the ask, etc...if
you don't have
experience in my business, there is no way you can appraise or
evaluate marketmaker
activity by staring at a level 2 screen all day. I don't mean this
in an arrogant way...it's
simply reality, just as having never been a politician I would not
profess to truly
understand what goes on in the White House from watching the
President give a news
conference. There is no way for you to know any of the factors that
really determine
MM activity, such as inventory levels, upcoming analyst
recommendations the MM
may or may not know about, the levels at which clients of the MM
will buy or sell,
what important customers are buying, selling, or shorting, etc. I
almost NEVER
advertise my true intentions by my position on a level 2 screen, nor
do other MM's.
Often, I will go high bid on a stock that I want to try to unload,
knowing that when
others see me go high bid, they will start buying since my firm is
perceived as a "power
player". There is no way any of you can know MM motives unless you
are one
yourself. Importantly, the MM agenda and influence is FAR less of a
factor the more
actively-traded and higher-priced the stock...yet another VERY
important reason to
avoid penny stocks. Didn't realize the BOSCF market is dominated by
a MM who
had some stock to unload, eh? The same principle applies to
shorting. A few of you
have been all over SI bragging about shorting INFU, a penny stock
that trades about
10,000 a day and has run from 3 to 6. Don't you think it can run
from 6 to 12? Don't
you realize that the few dominant players in this stock can do with
it whatever they
please, and that they may have an agenda that will wipe you out?
Will it be possible for
a member of your new thread's team to determine that agenda from
watching bids and
asks, and soes exposure levels and trade sizes? No.
I'd love to see some intelligent responses to the issues I have
raised above. |
