Suckers wellImagine being a farmer looking for water. You start digging a well. 10 meters deep no water, 20 meters deep no luck and you keep digging deeper and deeper hoping to find enough water to justify the investment and time spent digging. Now imagine a hedge fund or a bunch of short sellers who sold millions of shares short and are looking to find enough suckers with stop loss orders or who will be forced to sell at a certain price (they bought on margin and can't honour repeated margin calls for more cash) that will allow them to cover their shorts. Short sellers will do anything to push, force convince you to sell because they are sitting on millions of shares that they must buy to cover their short positions.
Imagine a market scenario where there is one strong hand representing smart money and 2000 weak hands representing dumb money. The strong hand knows the game of shorting stocks and has been playing it for decades while laughing all the way to the bank so they play their chips this way:
They dump a large order on the market by selling 5 million shares short for $6 a share
A few weeks later they sell short another 3 million shares for $5 a share
A few weeks later they sell short 1 million shares for $4 a share
A few weeks later they sell short 500,000 shares for $3 a share
A few weeks later they sell short 300,000 shares for $2 a share
A few weeks later they sell short 200,000 shares for $1 a share At the end of this special operation (bear raid) spanning between a few months to a few years the strong hand would have sold short a total of 10 million shares for $51,300,000 at an average price of $5.13 per share bought by some 2000 retail investors who are faced with two choices :
1- Sell at the current price of $1 per share to the strong hand who started it all and allow him to cover his short position for a total profit of around $41,000,000 (after fees, interest and commissions…) or
2- Get smarter and stronger and keep holding until the short sellers are forced to cover above $10 per share.