Baytex and those who make the markets. Markets are always right. That does not mean they are not rigged, or manipulated. Prime examples are options expiration, earnings dates, and certain types of news releases. Large swings that take place in a short period of time, appear to be irregular movements. To better understand how this takes place, is to also understand what moves a stock up, and down, for legitimate reasons.
A small free trading float, high demand, ownership in strong hands, and strong fundamentals, will cause an undervalued stock to rise.
A large free trading float, low demand, weak ownership, and sketchy fundamentals, will cause an over valued stock to fall.
What causes those irregular movements? Those who control large blocks of stock can facilitate these sorts of moves. Some of it is legal, and some of it is not. When it is not, then the manipulation schemes become a cost of doing business, in the form of fines. Steal billions and get fined millions, and nobody gets arrested, or serves any time. If the totals are millions, and getting fined thousands, it probably won’t even become news. That does not mean it doesn’t happen.
The entities I am referring to are market makers, and corrupt institutions. I will say not all of these entities are corrupt, though some are.
To manipulate a stock, you need inventory. From 2019 to 2021, there was a tremendous opportunity to gain inventory. Many on this board know what I am talking about, and it feels good! There is inventory here on this board that is not in the hands of market makers or institutions. Those of use who have that inventory, will help ourselves, by not helping the manipulators out!
If you have ever looked at a level 2 quote, you will see a bid and ask for every market maker making a market. For every transaction, this has to happen.
Private Purchaser –> Market Maker –> (Another Market Maker)* –> Private seller. *The second market maker is optional, and this could be multiples, in between. This is a real transaction. It works this way for institutional transactions too. This is normal flow of traded volume. There are also transactions that are not normal.
Market maker to market maker swaps. This is where things get sketchy. This can help drive a stock in any direction. If you look at Baytex price drops in the last three years, there are two times when a price fall has unusually high volume. There was a drop from $4.00 to $2.10 near the end of 2018, that took 1.8 billion shares traded to achieve, without a reversal of momentum. There was a second drop from $2.10 to the multi year low, that took 1.6 billion shares traded. Both of these drops required more shares than we have outstanding by more than 3 times, twice! The run up at the beginning of 2021 from the multi year low to about $4.20, only took about 900 million shares volume. Point and figure charts make this easy to see!
It is stunning, and there is no doubt that, the drops were justified, though the volume traded is not natural. The price swing was excessive in hindsight, and that is what fear of loss can facilitate. The explanation is that conditions were such, that market makers did not want any inventory on their books, and were net short of inventory, to massively short as it went down. As the bottom was put in, and fundamentals improved, market makers covered, and gathered inventory, for the next run up.
The excess volume in the two downturns was market maker and institutional swaps, to keep the price where they wanted it. This is how the “Market” in Baytex achieved a state of “Over Correction”.
Fast forward to where we currently are, and this document has explained why we are not moving higher as fast as we want it to. For Baytex to make an epic run, this will have to happen.
Institutions need inventory on a large scale. Nine Point’s 20 Million or so helps, though 400 Million shares in the hands of institutions would be MUCH MORE helpful. This is more true if they keep trading around a core position to a minimum.
Market makers need to have zero net inventory, this way they can’t be net short, net long, or able to make large swaps. They will force them to make a more honest market.
The individuals must retain their shares, and prevent shorting. If individuals have a very high sell order against the shares they hold, many custodians will not allow them to be loaned for the purpose of shorting. This statement is not going to make me popular with the distorters on the board, because it is a threat to their agenda! Yes, I can hear most of you laughing right now, and it is intentional!
I hope you enjoyed this analysis of multi year Baytex stock behavior. I really enjoyed writing it.
RS