Good read on stock manipulationT.H. Mitchell
It should be clearly understood by the Canadian investor that the majority of the "penny" stock companies are worthless and always will be worthless. This has been proven time and time again. Yet their stocks have a definite value as a speculative trading medium; in other words, the stocks themselves are not worthless so long as somebody is willing to buy them. Thus, one has to be pessimistic about the possibilities of the companies, yet optimistic about the profit opportunities which their stocks present. And these are the sentiments which guide the professional traders.
Of fundamental importance to an understanding of Canadian "penny" stocks and their price movements is the concept that the prices are almost entirely dependent upon public sentiment. It is of course true that public sentiment is an important factor to be reckoned with in dealings with all stocks, but the "penny" stocks are unique in one respect. The public sentiment surrounding Canadian mining and oil stocks is the result of professional operations designed to either create speculative enthusiasm or to kill it off, as the need may arise. Thus, by controlling market sentiment, the professionals control market prices.
The one factor that will always indicate the presence of strong professional activity is the volume of shares traded.
Heavy volume at high prices invariably signals a distribution.
Any time the price remains constant for a long time in any "penny" stock price history, professional activity is definitely in the stock.
More than nine times out of ten, an upward surge in price will be followed by a decline equal if not greater than the rise. Therefore, it is possible to pick out a number of "penny" stocks that have recently increased in price and say that these stocks will soon be selling at what they were before the price increases; you will be proven correct nine cases out of ten. Although the price action of one particular stock cannot be predicted with absolute certainty, their action on a group or total basis can be predicted with almost perfect accuracy.
The typical characteristics of professional buying were seen to be slow and steady accumulation in very narrow price ranges, interspersed with shake-out operations. The professionals never buy in large volume until they are ready to stage a price rise. Accumulation always takes place with relatively small volumes of trading, as the professionals buy the stock the public offers for sale at the professionals' bid prices.
Professionals and sponsors buy on bad news, and never buy when good news is being circulated. When things are looking the best for the stock is when the professionals are selling it. It is impossible to make profits in Canadian mining and oil stocks by doing anything else, which of course, is why the public always loses.
The speculator buys "price" alone and is not interested in value directly.
The most important thing to remember about "penny" stock speculation is that the speculator must take the attitude that all price movements are manipulations by the professional operators. This is not true, but to be on the safe side the speculator must operate as if it were. To the successful speculator, all news releases are promotional, all price changes are manipulations, and all apparently important discoveries are basically unimportant. Only by this extreme pessimistic thinking - entirely opposite to that of the optimistic public - can he be a successful speculator over the long pull.
Consider the sound logic behind the assumption that all price movements are manipulations. It is a fact that price declines are often drastic in the stocks of companies actively engaged in drilling. By assuming that the price was artificially high in the first place, and in the second place that after the bottom of the decline is reached the stock cannot recover unless sponsors accumulate it, the speculator has made himself invulnerable to the most common types of losses associated with "penny" stocks. He does not buy on the way down and thereby incur large paper loses, as does the public. He only buys the stock when he sees that professionals are buying it. The speculator knows that the price is rarely cheap regardless of how low it seems until such time the professionals find is so, and start accumulating the stock. Thus, the speculator is never holding stock which has little chance of ever rising in price. Only by thinking the worst of the market can he make the best use of it!
Often companies will go about their exploratory work with no fanfare. This lack of news for public consumption will usually put the stock and its possibilities on the bargain counter, since as soon as news is released, public interest and higher prices will come into the stock. Therefore, the speculator looks to buy active companies that the public thinks to be inactive because of the scarcity of news.