It is easy for a group of analysts to attack a company with one knee already on the ground. You just make a big deal out of all the negatives to scare the longs and leave out the positive side.
Since early this year when a short attack began against Chesapeake, I have been following all of the activity surrounding that company including all the news stories as well as all daily tic by tic trading activity.
I could see that CHK's trading didn't make sense. The stock price moved weird just like it did yesterday. It was up to $4.85 in premarket and soon down to $4.45 before it clawed its way back to $4.61
How it works!
This process can be used by market makers trading their own accounts or trading for hedge funds to either pump up a stock or to trash a stock but since I am using CHK as an example, we will discuss that situation. First information is widely distributed to make investors wonder about the company and to put fear into longs. Next, high volume shorting takes place to drive the company's share price down.
As the short attack continues, more shorts parade out negative news to continue to put questions in the back of investors' minds. Shorts and hedge funds use computerized trading to control the direction of the share price. At opportune times, the shorts overwhelm the buyers (bid price) of the stock by selling short large number of shares to drive the share price down and to eliminate the buyers for the stock at that given time. Many times, the market maker post false bid and ask numbers to try to lead the longs into selling at lower prices.
Shorts need to control the stock's share price over a long time (often several months to well over a year), and can't afford to just accumulate an unlimited number of short positions in the stock, so they have to be buying shares at the same time they are selling shares too. When the shorts drive the share price down, eliminating buyers as discussed above, some of those investors trying to sell their shares at that same time will follow the share price activity downward lowering their ask price.
Now the shorts can buy back some of the shares they have shorted at lower prices including some shares where longs have put stop-loss sale orders to protect against downside losses. The shorts will only buy shares part of the way back up as the share price rises, and then wait to see if new buyers come into the market. If the share price continues to rise up to much again during the day, the shorts will repeat the same selling and buying process to control the share price.
As mentioned above, the shorts need to control the share price over an extended period of time. They need to wear down the longs with rumor mongering as well as by creating fear as the longs continue to see the share price go down. They hope the longs will give up and sell their shares at the lowest possible share price.
Another observation, shorts try to wear down the longs by making sure that the share price closes down as many days in a row as they can put together. At the close of many days, I witnessed volume dramatically increasing as the shorts tried to insure CHK's share price closes down. Shorts are hoping the longs, frustration with the share price continuing downward, will end up in capitulation where as many longs as possible just give up and sell their shares.
I don't know how low the shorts will drive the share price of Chesapeake during this current short attack, but I do believe Chesapeake is a strong good growing company. As with all false short attacks, the share price will bounce back. After the share price bottom is reached, you can expect the shorts to continue their rumor mongering so they can continue buying to cover their shorts as the share price rises back up.
Since Chesapeake is already under attack by shorts, and if history repeats itself, anyone buying shares at this time should be in for some nice gains over the next 6 to 12 months as Chesapeake share price rises back to where it should be now (~$7.50). The shorts greatest fear is that people will figure out their lies too soon, and the share price will rise up to quickly. I think there is a good chance for that to happen as a lot of people are learning CHK is a target of a short attack.
Also I have to believe this manipulation has to involve collusion between many major players since it wouldn't work if they didn't work together. If one or more of the major short players decided they didn't want to participate further in driving the share price down, and decided to buy to cover, this would create a major problem for the other major short players. The remaining major short players would not only have to drive the price down based on selling shares to new longs but would also have to sell shares to those other major short players buying to cover their shorts. The remaining short players would not be able to manipulate the stock share price as easy as they did when working together.
If you are wondering why would they short more shares even when a company like Chesapeake has obviously turned the corner. Here is the reason. Since the shorts already have the investment community wondering about problems, introduced by the shorts themselves, they were able to take the steam out of a lot of long enthusiasm over the last quarter, the shorts now believe they will have a better opportunity on the next dip in oil prices. At least that's what the shorts hope for.
And since shorts know the timing of their attacks, they are able to make more profits from selling and buying options. I would have to believe these option profits could run into the millions of dollars.
As you can see from the large dollar amounts involved in the short attack, these must be big players and they must have a lot of influence over the marketplace.
The only encouragement I can offer is that weak longs will continue to be replaced by longs with a longer term view. Selling for a cheap price will soon dry up. There is already evidence of this happening right now. One of these days soon, good news with hit after the market opens and run CHK up at $1 or $2 and the shorts will die at the stake.
I was hoping yesterday was the day, but when I seen all the negative articles about the same old shit hit the market, I knew the shorts were pressing hard. Personally, I think they are beginning to get a little scared. And, when one outfit clears away from the scam, it will put the others in a stampede for the exit gate.
This is the big advantages of buying a once high-flying stock under a short attack. When they turn the corner and head north, they usually do so in giant leaps up. Just watch the volume... if it is sky-high and the price is moving up, hang on tight! Don't sell whatever you do.
This is a $7.50 stock right now and will hit $10 by January 2017!
