RE: MANIPULATION WILL BE PROVEDTTSB - JMHO but this manipulation by the big boys is for real and very apparent in the good quality juniors. How can retail possibly win when you have houses with unlimited funds that can 'walk' the sp down or up as it suites them? This is getting noticed as more and more newsletter writers are bringing it up. Below is from the Tycoon report today and unfortunately I deleted another one that suggested they should bring this rule back. You woud think that the companies themselves would be up in arms as it destroys their real market valuation based on facts.
Wall Street stocks are easy prey right now, and you'd better believe the bearish hedge funds are capitalizing on it. Hedge funds are well known for paying millions of dollars for inside information, or to create positive or negative sentiment. This practice became much easier in July of 2007.
You might have heard about the "uptick rule" being abolished last July (although it barely got any press). Long story short (he-he, I said "short"), in order to prevent an institution's ability to manipulate a stock's price lower by applying continuous selling pressure to a stock, the SEC created the "uptick rule". The rule dictated that you couldn't sell-short a stock until the stock traded at a price that was above the last traded price.
In short (he-he), the abolishment of this rule gave institutions the power to "lean" on a stock's price, thus triggering other investor's automatic sell orders. This leads the way to massive panic selling, which can cause a stock to drop at a much faster rate.
If you hear a rumor that you own the next Bear Stearns, and you notice the stock is down 10% and dropping through a major support level on heavy volume, you wouldn't be foolish for selling. But remember, the stock may not have broken support if not for the ability of the big institutions to knock it down to levels that would surely cause even more selling.
It Gets Worse
There's another important part to this story that I never hear the media talking about. Rules on margin requirements are changing, making it easier for funds to use more leverage. Another long story short (he-he)...
As of April 2007, new rules allow brokers to base margin requirements on the overall calculated risk of a portfolio instead of calculating it for each security within a portfolio. What do I mean by overall risk?
Margin accounts used to require that 50% of the value of a position must be put up. If an institution wanted to buy (to make math simple) 100,000 shares of a $100.00 stock, the margin requirement used to be $5 million (50% of the $10 million stock position). But if the institution also purchased protective put options that gave the fund the right to sell that stock at $100.00, the risk would be the cost of the put options. This is because the put options allow the investor to sell the stock at $100.00. The put option acts as an insurance policy, protecting from a disastrous decline. The maximum risk then becomes the price of the protective put.
To protect that $10 million dollar position, a put option position large enough to insure that $10 million position, if trading at $3.00, would cost $300,000.00. Institutions can control $10 million worth of stock for a cash outlay of $300,000.00. So, instead of a 2-1 margin ratio, you're looking at a 33-1 margin ratio. Institutions, in this example, need 3% of the value of the position instead of 50%.
So a few months before abolishing the "uptick rule", thus making it much easier for institutions to literally manipulate a stock lower so long as they had the buying power to do so, they changed margin rules to give institutions 17 times the buying power (or short-selling power) they used to have! WOW! SCARY!