These firms could have the last laugh. And it may be fun to ride along.
To familiarize with just how they may achieve such hilarity, a refresher of Reminiscences Of A Stock Operator may be in order, probably the best book ever written about how the Street really works. If you've ever wondered how a piece of crap like TZOO can go from 5 to 100 TWICE inside of ten years, this book is for you.
Ironically, the chapters on manipulation start on page 233, a Fibonacci number.
Manipulation . . . no more than common merchandising processes applied to the sale in bulk securities on the Stock Exchange.
Being a former ad man, I love this description:
There is no question that advertising is an art, and manipulation is the art of advertising through the medium of the tape. The tape should tell the story the manipulator wishes its readers to see. The truer the story the more convincing it is bound to be, and the more convincing it is the better the advertising is. A manipulator today, for instance, has not only to make a stock look strong but also make it be strong. Manipulation therefore must be based on sound trading principles.
Usually the object of manipulation is to develop marketability . . . there is no sense in marking up the price to a very high level if you cannot induce the public to take it off your hands later.
Another one of my favs:
It is well to remember a rule of manipulation . . . it is this: Stocks are manipulated to the highest point possible and then sold to the public on the way down.
Pages 246-250 are the meat of the matter:
Let me begin at the beginning. Assume there is some one -- an underwriting syndicate or an individual -- that has a block of stock to sell at the best price possible.
Ha, how about Morgan Stanley, JP Morgan, and Goldman Sachs?
I generally ask for and receive calls on a block of stock. I insist on graduated calls as the fairest to all concerned. The price of the call begins a little below the prevailing market price and goes up.
If as the result of my professional work -- my manipulation -- the price goes up, and if at the highest level there is a good demand for the stock so that I can sell fair-sized blocks of it I of course call the stock.
The first step in a bull movement in a stock is to advertise the fact that there is a bull movement on.
The most effective way to advertise what, in effect, are your honorable intentions is to make the stock active and strong. After all is said and done, the greatest publicity agent in the wide world is the ticker, and by far the best advertising medium is the tape. . . . I accomplish all these things by merely making the stock active.
Activity is all that the floor traders ask . . . I make the stock active in order to draw the attention of speculators to it. I buy it and sell it and the traders follow suit.
And now for some of those sound trading principles:
The selling pressure is not apt to be strong where a man has as much speculatively held stock sewed up in calls -- as I insist on having. The buying, therefore, prevails over the selling, and the public follows the lead not so much of the manipulator as of the room traders. It comes in as a buyer. This highly desirable demand I fill -- that is, I sell stock on balance. If the demand is what it ought to be it will absorb more than the amount of stock I was compelled to accumulate in the earlier stages of the manipulation; and when this happens I sell the stock short that is, technically. In other words, I sell more stock than I actually hold. It is perfectly safe for me to do so since I am really selling against my calls. Of course, when the demand from the public slackens, the stock ceases to advance. Then I wait.
Say, then, that the stock has ceased to advance. There comes a weak day. The entire market may develop a reactionary tendency or some sharp-eyed trader my perceive that there are no buying orders to speak of in my stock, and he sells it, and his fellows follow. Whatever the reason may be, my stock starts to go down. Well, I begin to buy it. I give it the support that a stock ought to have if it is in good odour with its own sponsors. And more: I am able to support it without accumulating it -- that is, without increasing the amount I shall have to sell later on. Observe that I do this without decreasing my financial resources. Of course what I am really doing is covering stock I sold short at higher prices when the demand from the public or from the traders or from both enabled me to do it. It is always well to make it plain to the traders and to the public, also that there is a demand for the stock on the way down. That tends to check both reckless short selling by the professionals and liquidation by frightened holders which is the selling you usually see when a stock gets weaker and weaker, which in turn is what a stock does when it is not supported. These covering purchases of mine constitute what I call the stabilising process.
As the market broadens I of course sell stock on the way up, but never enough to check the rise. This is in strict accordance with my stabilising plans. It is obvious that the more stock I sell on a reasonable and orderly advance the more I encourage the conservative speculators, who are more numerous, to finance my operations. My fee is contingent upon my success.
Of course what I have described is not my invariable practice. I neither have nor adhere to an inflexible system. I modify my terms and conditions according to circumstances. A stock which it is desired to distribute should be manipulated to the highest possible point and then sold. I repeat this both because it is fundamental and because the public apparently believes that the selling is all done at the top. Sometimes a stock gets waterlogged, as it were; it doesn't go up. That is the time to sell. The price naturally will go down on your selling rather further than you wish, but you can generally nurse it back. As long as a stock that I am manipulating goes up on my buying I know I am all hunky, and if need be I buy it with confidence and use my own money without fear precisely as I would any other stock that acts the same way. It is the line of least resistance. You remember my trading theories about that line, don't you? Well, when the price line of least resistance is established I follow it, not because I am manipulating that particular stock at that particular moment but because I am a stock operator at all times.
When my buying does not put the stock up I stop buying and then proceed to sell it down; and that also is exactly what I would do with that same stock if I did not happen to be manipulating it. The principal marketing of the stock, as you know, is done on the way down. It is perfectly astonishing how much stock a man can get rid of on a decline.
I repeat that at no time during the manipulation do I forget to be a stock trader. My problems as a manipulator, after all, are the same that confront me as an operator. All manipulation comes to an end when the manipulator cannot make a stock do what he wants it to do. When the stock you are manipulating doesn't act as it should, quit. Don't argue with the tape. Do not seek to lure the profit back. Quit while the quitting is good and cheap.
One of my favorite examples is Molycorp (MCP) which IPO'd into a rare earth bull run.
Meanwhile the Facebook is showing signs that elephants may be entering the water. Recall manipulation's first step: The first step in a bull movement in a stock is to advertise the fact that there is a bull movement on.
Obviously that has yet to occur, but I do see signs of possible preparation. When large operators step in the pool, they create a splash. Volume spikes are occurring on large up days. However, until 33.45 is exceeded, there is still a Fibonacci extension target at 13.97.
While I may be a long-term bear on the stock market, I do see a path to higher prices. It is quite possible that a sudden out-of-nowhere bull run on the Facebook could ignite a broader rally. With Apple showing signs of mania fatigue, the Facebook is poised to replace it as the new darling.
A business model developed in a college dorm room as a way to rate girls which grows to over 1 billion users swapping photos and the latest gossip while still trying to figure out how it will monetize itself in the new world of mobile is the perfect vehicle to capture the investing world by storm should a bull stampede happen. Price comparisons to AAPL, GOOG, PCLN, and AMZN would ensue. It would be Game On.
One would want as large a core position as one could afford. Covered calls could be sold on 8% mega up days. Puts could be bought on rips, puts could be sold on dips. Profits could be parlayed into a larger core position. CNBC would go absolutely crazy. Maria would look like a teenager. Cramer would need sophisticated new meds. Everyone in America would be a day trader again. Everyone in America would be having sex again. Sales of hoodies would skyrocket and would become de rigueur business attire. Sales of Prozac would plummet. Everything would be awesome.
All because Morgan Stanley, JP Morgan, and Goldman Sachs each have an enormous block of stock to sell at the best price possible.
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