ALL: Here's a posting from one of the Threads here on SI that I had copied and emailed to friends awhile back. I don't remember on what thread I copied it........
I THINK IT IS A MUST READ FOR EVERYONE!!!!
ENJOY.
On Silicon Investor there is always someone talking about Market Maker manipulation.
The following quote is from a post by a marketmaker addressing this issue.
From the horses mouth:
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 hedgefund...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.
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