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

To: Robert Cohen who wrote (11632)	6/1/1999 8:35:00 AM
From: John Curtis	Respond to of 27311

I guess now's the time to resurrect an old MM article that rears its head from time to time. FYI! ---------------- (BELOW IS A REPRINT of AN INTERESTING ARTICLE FOR EVERYONE TO READ). Sorry if it is long winded. NASDAQ BB ALERT Below is an essential guide to understanding Market makers on the Nasdaq market as pertaining to all good and bad stocks and an explanation as to how a MM NEVER QUITS SHORTING A STOCK. As far as we are concerned, shorts provide an invaluable service to investors, preventing people from paying too much for a stock incase of a good promo and keep things in check with regards to market cap of a stock eg KTEL. They also provide the liquidity on the way down and way up. Without shorts, we will never experience the sharp gains in price movement. Shorters dont give up. They just keep shorting at higher and higher levels to bring up their averages so they always look good on paper for their brokerage house and since stocks dont go up indefinitely, they will eventually get their money back on that particular stock. However, if they short a REAL STOCK with solid fundamentals eg. DCHT, they will eventually be in a NET LOSS situation as investors that buy into the comopany stick and as fundamentals roll along, it will rise higher faster on the subsequent uptrend. A better value in share price is better reflected on the NASDAQ big board as that is when institutions come into the picture. MM GAMES Ways of a MM (Market Maker) I was a OTC MM for about 10 years ending in the late 80's. Since then I have been strictly an investor. Since I have not been that up to date in MM rules I will only make statements that I feel fairly confident are still accurate regarding these activities. By and large most MM don't have a clue nor do they care to learn, about the fundamentals of the stocks they trade. They just try to make orderly markets. When dealing with BB stocks it is very easy for a MM to get trapped into being short in dealing in a fast moving market. Reason being; most of the MM's in this stock are what are called "wholesalers" this means they don't have retail brokers "working" the stocks. So they have to rely on whats know as the "call" from larger retail houses. If a "Big" retail firm like an E-trade calls up a market maker to purchase say 5,000 shares of a stock, they expect to get an "execution" from that market maker. If he turns them down, or only gives a partial then the "Big" firm will go to another MM. If this second MM "fills the order" then that "Big" firm has a moral obligation to continue to give future "business" in thatstock to tha MM who preformed (his life blood). This will go on until he "fails" to perform and so on. Contrary to popular opinion the "Big" firms Do NOT neccessarly go to the "Low Offer" to fill a buy order (Or high bid for a sell). They "Go" to who they think will perform to fill the order and expect that MM to "match" the "low offer" in the case of a buy (bid in the case of a sell). Even though this MM might in fact be the "high bid" and not really want to sell any more. As a wholsaler he must perform or he will get a reputation as a "non-performer" with the "Big" houses and will cease getting "calls" which means he will soon go out of business. I mentioned above that this activity is very significant to BB stocks. I say this because most of the trades in these BB stocks are "unsolicited" and are done through discount houses, ergo "Big" firms. With the above groundwork layed, let me try to explain how market makers get short even if they like the Company; Lets say that a stock (shell) has been lying quitely at $.25 bid $.50 offered. A limit order comes into one of the MM's to Buy at $.50 for a thousand shares. Prior to this trade that MM may be "flat" (neither long or short any shares). He fill the order and is now short 1,000 shares. He may raise his bid hoping to find a seller to "flatten" out his position. But before he realizes it a wave of buyers have come in and cleared out all the $.50 offers. Now the stock is $.50 bid .75 offered. Here comes that "Big" firm he just sold the 1,000 shares to at .50 with another bid for 1000 at .75. He makes this print. Now he is short 2,000 at an average of .625. The market keeps moving and now its .75 bid 1.00 offered. Now he has to make a decision. Just like investors, MM Hate to take a loss. So 9 times out of 10 he will now sell 2000 at 1.00 making him short 4000 but with an average .81. At this time he would love to see a seller at .75 so he can cover his short and make a few bucks. But instead the market keeps moving up. Now it is 1.00 to 1.25 and here comes the buyer again at 1.25. He doesn't want to loose the call so now he needs to sell 4,000 at 1.25 to keep his break even point above the bid. Now he is short 8,000. Market moves up to 1.25 bid 1.50 offer here comes the buyer now he feels he must sell 8000 here because "stocks don't go up forever". Now he is short 16,000. And so on and so on. If the stock keeps moving up, before he realizes it he could be short 50k or 100k shares (depending how big his bank is). Finally the market closes for the day and on paper he may look all right in that his "break even" price may be around the closing price. But now he has to figure out how to entice sellers so he can cover this short. It is important to note that if this happened to one MM it has probably happened to most all of them. Some ways MM's entice sellers; Run the stock up with a "tight spead" in a fast market, then "open" up the spread to slow down the buying interest. After it has "cooled off" for a little while lower the offer below th last trade right after a small piece trades on the offer then tighten the spread so that the sellers feel they can take a "quick profit" by "hitting the bid" on the tight spread. Once the selling starts the MM's will walk it down quickly by only making small prints on the way down with the tight spread. Another way is by running the stock up in the morning, averaging up their short then use the above technique to walk it down in the afternoon. Hopefully after doing this for several days, it will demoralize the buyers. The volume will dry up and the sellers will materialize thinking that the game is over. Contrary to popular opinion, MM usually Do Not Cover in Fast moving markets either Up or Down if they are short. They Short More. They usually try to cover after the frenzy is out of the market. There are many other techniques they use but the above are the most popular. This technique works about 9 times out of 10 particulary in a BB market. However that is because 9 out of 10 BB stocks are BS. Remember what I said above. Most MM's don't have a clue as to the value of a Company until they get trapped. If the Company has solid fundementals and a bright future. Then the stock will do very well. And the activity that caused the situation will prove to even help the future stock activity because it created an audience. -------- I've seen most of the above employed(or at least I SUSPECT they've been employed) from time to time when watching/following sundry issues. I think it'll be good to have these techniques in mind once VLNC truly starts to run. John~

To: Robert Cohen who wrote (11632)	6/1/1999 9:47:00 AM
From: William Epstein	Read Replies (1) \| Respond to of 27311

Doc; No one is patronizing you. I'm not asking you to be a believer. It simply makes sense. Have you known any market makers personally? You'll find that many double as retail stock brokers. Talk to your broker, if you have one and find out if his company makes a market in certain stocks. The larger the brokerage house, the more stocks they will make a market in. If they make a market in a stock it follows that they supply the money to the market maker to make the market. If their monies are at risk, what do you think they do? On the NYSE they are prohibited from owning specialist firms so they use an intermediary, the investment banker. Check the specialist operations and find out who owns them. It is almost always a bank or and investment banking operation. Arguing with me gets you nowhere. The facts are what they are, if you care to check them out. I never saw anyone , in business that would put money at risk without wanting some control. Not to do so is bad business. Its stupid. When billions are risked to provide liquidity where do you think it comes from? Doc, I hate to say this but conspiracy is the normal state of affairs, when money is involved. Some are hidden and some are even, blatant. It is almost axiomatic that the more money involved, the more conspiracy you will find. I could cite endless examples. Why, endless? It is reasonable to assume it, after examining the evidences, that it is an everyday occurrence. One cannot do business alone. To do business requires the cooperation of other parties. Business is a cooperative effort. To insure profit requires control. Bill