Market Maker ManipulationHi,
I've found a nice article that explain what could be going on here:
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=20497
Market Maker Manipulation or Market Influences (Revised from my first write up on Jan. 22, 2000) Source: https://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=12644759 The savvy long-term investors never chase stocks up. For the most part, that is what momentum players and daytraders do mostly and soon dumb money follows. Instead the long-term investors uses a couple of simple strategies in order to position themselves. One strategy is to find a stock no one immediately sees has huge potential and accumulate. Long-term investors are not interested in trading against the public mind or the dumb money. That's where the majority of the money can be made, but even more so if the base of a stock is held extremely strong by investors. However, the second strategy is not to doubt the research, which is the underlying basis for going long and holding investment style. More and more investors are winning the game nowadays despite all bashers that float through the Internet. Bashers have become part of the game. Floor traders of market makers often watch CNBC, news wires and bulletin boards in order to follow the market during trading session. OTC BB market makers (MMs) don't use fundamental and technical analysis. However, what they do realize is a lot of dumb money that does use this newest nitch charting or TA (Technical Analysis) to run an OTC stock either up or down. To the MMs this is like taking candy from a baby. They will simply paint the tape so to speak and use whatever tactic to affect the charting bands. Thus the public and dumb money will be eating out of their hands. Effectively the MMs can show a strong stock growing weak by manipulating the close price in order to generate selling volume, delay trading time to manipulate trading activities, or even stalling the ask without honoring orders to hold a stock price just to mention a few. However, are they merely doing what they are suppose to do which is make an orderly market? MMs follow a simple code of business when making a market in a stock, especially an OTC BB. They are out to find at what level will the stock price be that yields the most volume. Now this is very important because they make money on the volume buying at the Bid and selling at the Ask. In other words, by making the market they are buying low and selling high. Now smart money adheres to that rule, so do all the market makers. They could careless whether the stock is at $83 or at $0.23. All they care about is the action thus being able to sell stock at the offer (The high) and buy stock at the bid (The low). To increase their profitability, especially if the volume falls off, they make the spread gap as great as possible on as many shares as they can trade. When they have mostly all "buy" orders, that's not the price that's going to yield the most volume. They need both buy and sells to get the maximum action. Remember that MMs play the volume. If the volume decreases and there are mostly Buys that becomes a one way volume, Buy Volume. So what they do is let the stock run up to a price where it runs out of steam and fill all the buy orders there that they can (MM Sells). Next comes the pullback one way or another, naturally or induced. During the pull back, they can buy tons of shares (MM Buys) and flip those shares to investors or traders averaging down or trying to catch the bounce. At some price, the stock will be relatively stable and yield the most volume. Now that is the “average price” you will see. The “average” price is the point where a stock seeks a level where MMs can profit on the most volume. Bard Formula: (Highest Stall Price – Stable Starting Price = Run Variable / 2 (investors & traders) = Stable Variable + Starting Price = Average Price x .70 = Break Price) Example: Lets say a stock goes from $1.00 to say $4.00 then ($4 – $1 = $3 / 2 = $1.5 + $1 = $2.50 x. 70 = $1.75). How I arrived at this little math formula was considering the run is legit and not just some fluke. The short and day traders will exit while the long term will hold so it should stabilize at the Average Price or short term traders call it the Bounce Price. However, should it break the Break Price, it typically returns back to its Starting Price or lower. Dilution has a major effect on this formula. This is merely my own math I have used for years to position trade or short trade depending on the fundamentals and potential. (Another words how well do I believe the story.) So during the day the Average Price is the price that MMs and momentum/day traders want to see the stock trading. Why? Because the MMs know the public and dumb money was chasing the price up. Most of the time, the MMs love a flurry of Market Orders, which is a dead sign of an artificial run or momentum. Merely it is money in the bank for them. Most of the time newbie or not so savvy momentum or day traders get trapped by the orderly market tactics of Market and get hung. Then comes the screaming, “The MMs are in the business to screw the public every chance they get and the NASD is not going to do anything about it.” Are they really or are they merely making the market liquid and orderly? Depends on your reasoning. The market makers have created an added complication to the OTCBB's chaos of the already volatile intra-day price movements created by dumb money, momentum and day-traders. MMs can not relate to long-term holders in the OTC BB. That makes absolutely no sense what so ever. They feel a large percentage of trades in the OTC BB market consist of short-term or day-trades, MMs merely view the barrage of buy and sell orders as relatively neutral to the market. How MMs figure it is, when the average dumb money buys shares in a company, the MMs feel or rather know with some certainty, it is very likely that dumb money will want to sell back those shares relatively quick on the slightest drop. Besides they have Level III, which shows them in advanced a list of what is about to happen. Now somewhat comfortable with this logic supported by Level III, the MMs merely short sells into the buying. They attempt to take the stock down in an effort to "shake out" the weak shares. Since it is tough for the public to know for sure whether a move is the beginning of a trend, or a routine shake out, this type of tactic works quite well for the MMs. What the long-term investors do to a stock is surprise the MMs, because instead of falling for shake out they buy more, of which, the shorting has no effect and the price goes up. Now that puts the MM at selling low through shorting and thus having to buy high in order to cover. Now when this happens, the MMs are not very happy campers. The investors and traders are supposed to be doing that no them. Now it becomes time to pull out every trick and tactic in the book in order to attempt to get a Bear Raid. They will target a specific dollar mark or percent from where the stock started. Could be a penny, nickel, dime, quarter in smaller priced securities? What MMs do is give you a chance to make a small amount of money for your momentum and day trading style by shorting it at these levels and trying to get a bear raid each time. Each failure is compounding the MMs short position so they let it go to the next level. Now come more deliberate tactics MMs use to coerce a Bear Raid or panic selling. Remember that Market Maker broker’s jobs depend on making the firm money. Period! Once the MM is caught short and the strength of the buying is overpowering the MM will want to cover the short position. It used to be the MMs call up one of his friendly MMs and says some like "the weather is sure rough today." The MM along with the other "friendly MM initiates a down tick about the same time. However, the law now says MM can not talk to each other and have to independently make the market. Since then, especially in lower priced securities, this can also be done with a certain amount of shares such as an infamous 100 shares MMM red flag. This is done simply by partially filling orders. In my experience NITE is infamous for filling 500 shares and then waiting for a sell to finish filling the rest of the order, whereas, HRZG is infamous for filling 100 shares and then waiting. In appears MASH is associated with the 200 shares that show up, but I can not say with any certainty that this is the case. I am learning these partial fills on execution are all part of the order flow agreements they have in place. Any down tick often gives the illusion of weakness designed to hopefully begin a Bear Raid of selling. The fickle, fearful, day trader, momentum and short term begin to sell out allowing the MM to cover his short position at lower prices. Seeing the selling coming in the MMs will move it down quickly to get the price to a point of least financial damage. Problem the MMs have is long-term investors in the OTC BB. They start accumulating and buying comes flying in when they take it too far. This means the MMs took it to the point of volume again attracting not only investors, but momentum, daytraders and even other MMs step in the box to make money on the spread. Alas the poor MM does not get to cover. Now comes 12 Red Flags of Market Maker Manipulation like stalling, boxing, cross trading, no fills, Ask orders filled at the bid, or even locking the Bid and Ask for a while are just a few. To be continued …. Hey this is my opinion and I could be wrong. Gary Swancey