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Technology Stocks : VALENCE TECHNOLOGY (VLNC) -- Ignore unavailable to you. Want to Upgrade?

To: hcirteg who wrote (3880)	8/22/1998 12:53:00 PM
From: MGV	Read Replies (2) \| Respond to of 27311

Don't get excited girls. I remain highly skeptical of VLNC on production, financing/dilution, and competition dimensions. Precisely because VLNC has painted itself into a corner regarding delivery of product - either they deliver now or they will lose permanently the competitive opportunity - for a very low price, I decided the December 5 calls were worth the risk. If VLNC has not progressed to the point where the December 5s have value by November, the underlying equity value will be in bigger trouble. I don't expect that they will but, for the price and the circumstances, there is not much to lose with this option.

To: hcirteg who wrote (3880)	8/22/1998 2:02:00 PM
From: kolo55	Respond to of 27311

The Art of Low Priced Stock Manipulation Part 1: Understanding the Impact of Margin Rules Lets explore the impact of margin rules that various brokerages use to see if these rules are impacting the trading in Valence stock. Now, I know the sophisticated traders and investors out there already understand these rules and the game being played, but bear with me until I lay it out so that we can carry on a more informed discussion on this thread. Most brokers allow margin traders to buy the stock using margin, i.e. borrow up to 50% of the purchase price under Federal Reserve rules, as long as the price of the stock is over $5. Another way to say this, is the Buying Power available in margin accounts can be entirely used to purchase shares of stocks over $5. If the stock is under $5, any purchases count the same as cash transactions, i.e. the buying power drops by twice the amount of the purchase. If a margin player deposits $5000 into a margin account, then they have $10,000 of buying power. They can buy 2000 shares of a $5 stock (ignoring comissions in this calculation for simplicity). They essentially borrow $5000 from the broker. But if the stock is 4.9375, then they can only buy 1000 shares. This transaction counts as using $4937.50 in cash, they can't borrow any funds on the purchase, and it depletes the buying power in this account. If a trader buys more stock than their buying power, then they get a Reg T call for the additional monies, per Federal Reserve regulations. (Note: Most brokers woouldn't allow a margin account with only $5000 in equity, but I'm using the small number to keep the calculations simple.) After the stock is purchased, the stock counts as equity for the margin maintenance requirements set by that particular broker. This maintenance requirement is set entirely by the broker, and not required by Federal Reserve regulations. The purpose of the margin maintenance is to protect the broker's loan. Many brokers allow low priced stocks to be counted as equity in the margin account until the stock falls below 4, and some brokers use below 3.50 as a cut-off. Others are now using a floor of 3.50, and only allowing any value above 3.50 to count in account equity calculations. In the hypothetical example I used above, if the trader bought 2000 shares at 5, and used the 10,000 buying power up completely, when the stock dropped below 4.00 (or 3.50, depending on the broker), the broker would call the trader up, and ask him to send in $5000, the entire amount of the loan. Since the stock no longer could be used in margin equity calculations, the trader had to pay off the loan entirely. Even if the trader holds other stocks in the account, if the overall market suffers a decline, the trader can get a serious margin call. This creates an opportunity, in some cases, for stock manipulation. continued... Paul

To: hcirteg who wrote (3880)	8/22/1998 2:04:00 PM
From: kolo55	Respond to of 27311

Part 2: A Possible Scenario for Recent Trading in Valence I emphasize that this is a possible scenario, and we can't know for certain if this is going on. But there is a significant liklihood that something like this is impacting the stock trading and price. I normally don't subscribe to market manipulation theories, but this is one of the special cases where there is a strong possibility. OK, lets say a stock manipulator was following Valence at the time of the recent Wednesday conference call. Following the call the stock ran up from 4 7/8 to 5 1/2, on pretty good volume, then sold off back to below 4 7/8, also on very good volume. Lots of possible reasons; profit taking, hesitancy to hold positions until purchase orders were imminent, lack of new money coming into the stock from new players, concern volume production still not underway, etc. Nothing for the manipulator to do yet. But now a large motivated seller hits the scene. The seller pounds the bid with big blocks on Thursday and Friday. Now the market makers, short term traders, and manipulators, smell blood. They know that many of the Valence shares are held in margin accounts, and they know that if the stock drops below 4, and especially to 3.50, the margin players will get some huge margin calls. They have an incentive to sell stock from their inventory, short the stock or options, and establish a short term trading position, in an attempt to push the margin players to the wall. They would do this from 4 1/2 all the way down to 3.75. Are there risks? Yes. There could be large players who want to establish a position in the stock at 4, and will take all the shares offered at that price. But the traders should be able to see the big block buys, and close out their positions. And the large players and market makers also can anticipate the forced selling due to margin pressure, and set their support prices low enough (say 3.625 to 3.75), to take advantage of it. They all understand the game. Another risk is that the company could release some favorable news, and draw a wave of new money and investors into the stock. But since the company just had a conference call, its unlikely that more news would be forthcoming for say the next two weeks. So all in all, the stage was set for a drop to the 3.50 to 3.75 range, with forced margin selling at the bid when the stock remains below 4 for several days. The overall weakness in the stock market aided the drop. continued ...