Why I would sell and buy later..The stock price is not going to rise in the absence of positive news. It may pop, and you may have a chance to get out, but if you're not a day-trader, it is possible you will miss the opportunity anyway.
Market makers (MMs) earn money in two basic ways:
(1) They work the spread
(2) They bias the share price
It is obvious that if retail investors send market orders, then the MMs will earn money on the spread if there is two way flow. In many cases, however, the flow is biased. In order to make money on the bias in order flow, they must bias the share price. In a world where most people trade at market because spreads "appear to be tight" the consequence is that there is actually little real liquidity in the book.
Imagine an order book where only a single MM is permitted to enter resting orders. In SEV's case, he can set the price at 50 cents +/- 1 cent bid/ask for a 2 cent spread. Given that retail investors almost always trade long positions, the MM can sell at 51 cents and reduce the quote by one tick each day. Holders will apparently lose money on paper and eventually sell at a lower price, at which point the MM flattens his exposure and then pops the price back to 50 cents again where people get excited, hit his offers and the MM goes short. The cycle starts again with a slow decline in price as time proceeds.
This behaviour results in a blurred saw tooth pattern with sharp rise on the left side of the sawtooth and the slow decline on the right. Many small cap charts will resemble saw tooth pattern because of this effect. The sawtooth also prevents casual retail investors from going short because it comes with unbounded risk and you must commit yourself to watching all day every day in order not to be destroyed.
The sawtooth is frequently obscured due to noise and other effects. However, to quantify the effect, the average slope between local minima and local maxima on a sliding window of x samples will be higher for rises and lower for declines where MMs are dominant.
There is a emergence function that yields little transformation of this pattern even if there are multiple MMs on the same stock. They all work to achieve the same goal. The MM with the biggest book or best technology will be resolved as the whale, and other MMs won't shake the boat.
Even large caps are not immune. After the VW emissions test scandal hit the news, VW opened the subsequent day at exactly the price reflecting a fine of U$18B which VW could be subject to in the US. The U$18B was neither comprehensive nor based on reality. It also was not something the buy side digested in any meaningful way. The stock price was set ENTIRELY by market makers who didn't know what else to do and simply resolved a number out of thin air and traded spread for weeks. A normal result would have been to see a large spread by market makers (or avoidance altogether) while organic liquidity established equilibrium during a period of significant but diminishing volatility. THAT DID NOT OCCUR. Market makers control the price of even large cap stocks.
Conclusion:
Don't pay market prices. You can break a market maker's biasing strategy by leaving as little as 5% ADV in the book.
More importantly, however, you will find it difficult to make money by going long unless you actually expect good news out of a company, which is the only real risk a MM on small caps faces during his day. The other risks a MM faces are largely administrative and operational.