You mean this essay ?
The Deadly Art Of Stock Manipulation
HOT STOCKS
CONFIDENTIAL ESSAY
By George Chelekis
NOTE: I believe this may be one of the most important essays on the
financial markets which you will ever read. This essay will be
the lead article in Hot Stocks Review, (Part Two). Up until recently, I knew
that I was missing something, but I could not
quite put my finger on it. Now I know what it is. The data which follows is
only as good as you can actually use it. These are the cold, savage and
ruthless facts of market manipulation. I have not made these up, but have
dug them up out of out-dated, generally unavailable books on Canadian market
manipulations, and pieced the rest together from observations, personal
experiences and conversations with market professionals and insiders. While
the books are out of date, the manipulations have been passed down from one
generation to another. The only thing missing was someone to supply you with
what those tricks were so you can become a more educated speculator. Many
thanks to Robert Short and Vern Flannery, of Market News Publishing, for
finding and sending me a copy of the book, "The Story Behind Canadian Mining
Speculation" by T. H. Mitchell, first published in 1957 by George J. McLeod
Limited; also Ivan Shaffer's book, "The Stock Promotion Game." I have been
told that many of these tricks are now illegal. If so, would someone please
tell that to the market manipulators.
THE DEADLY ART OF STOCK MANIPULATION....
In every profession, there are probably a dozen or two major rules. Knowing
them cold is what separates the professional from the
amateur. Not knowing them at all? Well, let's put it this way: How safe
would you feel if you suddenly found yourself piloting (solo) a Boeing 747
as it were landing on an airstrip? Unless you are a professional pilot, you
would probably be frightened out of your wits and would soil your underwear.
Hold that thought as you read this essay because I will explain to you how
market manipulation works.
In order to successfully speculate, one should presume the following: THE
SMALL CAP STOCK MARKETS PRIMARILY EXIST TO FLEECE YOU! I'm talking about
Vancouver, Alberta, the Canadian Dealing Network and the US Over-the Counter
markets (Pink Sheets, Bulletin Board, etc.). One could also stretch this,
with many stocks, to include the world's senior stock markets, including
Toronto, New York, NASDAQ, London, etc. The average investor or speculator
is not very likely to have much success in the small cap crapshoots. I guess
that is what attracted ME to these markets. I have been trying, for quite
some time, to answer this question, "How come?" Now, I know. And you should,
too!
By the way, the premise of these books is uniformly: "While these
speculative companies do not actually make any money, one can profit by
speculating in these companies." THAT is the premise on how these markets
are run, by both the stock promoters, insiders, brokers, analysts and others
in this industry. That logic is flawed in that it presumes "someone else" is
going to end up holding the dirty bag. Follow this premise all the way
through and you will realize the insane conclusion: For these markets to
continue along that route, new suckers have to continue coming into the
marketplace. The conclusion is insane in that such mad activity can only be
short-lived. I disagree with this premise and propose another solution (see
my earlier essay: A Modest Proposal) at the end of this essay.
What the professionals and the securities regulators know and understand,
which the rest of us do not, is this.
"RULE NUMBER ONE: ALL SHARP PRICE MOVEMENTS -- WHETHER UP OR DOWN -- ARE THE
RESULT OF ONE OR MORE (USUALLY A GROUP OF) PROFESSIONALS MANIPULATING THE
SHARE PRICE."
This should explain why a mining company finds something good and "nothing
happens" or the stock goes down. At the same
time, for NO apparent reason, a stock suddenly takes off for the sky! On
little volume! Someone is manipulating that stock, often with an unfounded
rumor.
In order to make these market manipulations work, the professionals assume:
(a) The Public is STUPID and (b) The Public
will mainly buy at the HIGH and (c) The Public will sell at the LOW.
Therefore, as long as the market manipulator can run crowd control, he can
be successful.
Let's face it: The reason you speculate in such markets is that you are
greedy AND optimistic. You believe in a better tomorrow and NEED to make
money quickly. It is this sentiment which is exploited by the market
manipulator. He controls YOUR greed and fear about a particular stock. If he
wants you to buy, the company's prospects look like the next Microsoft. If
the manipulator wants you to desert the sinking ship, he suddenly becomes
very guarded in his remarks about the company, isn't around to glowingly
answer questions about the company and/or GETS issued very bad news about
the company. Which brings us to the next important rule.
"RULE NUMBER TWO: IF THE MARKET MANIPULATOR WANTS TO DISTRIBUTE (DUMP) HIS
SHARES, HE WILL START A GOOD NEWS PROMOTIONAL CAMPAIGN."
Ever wonder why a particular company is made to look like the greatest thing
since sliced bread? That sentiment is manufactured.
Newsletter writers are hired -- either secretly or not -- to cheerlead a
stock. PR firms are hired and let loose upon an unsuspecting public.
Contracts to appear on radio talk shows are signed and implemented.
Stockbrokers get "cheap" stock to recommend the company to their "book"
(that means YOU, the client in his book). An advertising campaign is rolled
out (television ads, newspaper ads, card deck mailings). The company signs
up to exhibit at "investment conferences" and "gold shows" (mainly so they
can get a little "podium time" to hype you on their stock and tell you how
"their company is really different" and "not a stock promotion.") Funny
little "hype" messages are posted on Internet newsgroups by the same cast of
usual suspects. The more, the merrier. And a little "juice" can go a long
way toward running up the stock price.
The HYPE is on. The more clever a stock promoter, the better his knowledge
of the advertising business. Little gimmicks like
"positioning" are used. Example: Make a completely unknown company look warm
and fuzzy and appealing to you by comparing it
to a recent success story, Diamond Fields or Bre-X Minerals. That is the
POSITIONING gospel, authored by Ries and Trout (famous for "Avis: We Want To
Be #1" and "We Try Harder" and other such slogans). These advertising/PR
executives must have stumbled onto this formula after losing their shirts
speculating in a few Canadian stock promotions! The only reason you have
been invited to this seemingly incredible banquet is that YOU are the main
course. After the market manipulator has suckered you into "his investment,"
exchanging HIS paper for YOUR cash, the walls begin to close in on you. Why
is that?
"RULE NUMBER THREE: AS SOON AS THE MARKET MANIPULATOR HAS COMPLETED HIS
DISTRIBUTION (DUMPING) OF SHARES, HE WILL START A BAD NEWS OR NO NEWS
CAMPAIGN."
Your favorite home-run stock has just stalled or retreated a bit from its
high. Suddenly, there is a news VACUUM. Either NO news or BAD rumors. I
discovered this with quite a few stocks. I would get LOADS of information
and "hot tips." All of a sudden, my pipeline was shut-off. Some companies
would even issue a news release CONDEMNING me ("We don't need 'that kind of
hype' referring to me!). Cute, huh? When the company wanted fantastic hype
circulated hither and yon, there would be someone there to spoon-feed me.
The second the distribution phase was DONE....ooops! Sorry, no more news.
Or, "I'm sorry. He's not in the office." Or, "He won't be back until
Monday."
The really slick market manipulators would even seed the Internet news
groups or other journalists to plant negative stories
about that company. Or start a propaganda campaign of negative rumors on all
available communication vehicles. Even hiring a
"contrarian" or "special PR firm" to drive down the price. Even hiring
someone to attack the guy who had earlier written glowingly about the
company. (This is not a game for the faint-hearted!)
You'll also see the stock drifting endlessly. You may even experience a
helpless feeling, as if you were floating in outer space
without a lifeline. That is exactly HOW the market manipulator wants you to
feel. See Rule Number Five below. He may also be doing this to avoid the
severe disappointment of a "dry hole" or a "failed deal." You'll hear that
oft-cried refrain, "Oh well, that's the junior minerals exploration
business... very risky!" Or the oft-quoted statistic, "Nine out of 10
businesses fail each year and this IS a Venture Capital Startup stock
exchange." Don't think it wasn't contrived. If a geologist at a junior
mining company wasn't optimistic and rosy in his promise of exploration
success, he would be replaced by someone who was! Ditto for the high-tech
deal, in a world awash with PhD's.
So, how do you know when you are being taken? Look again at
Rule #1. Inside that rule, a few other rules unfold which explain how
a stock price is manipulated.
"RULE NUMBER FOUR: ANY STOCK THAT TRADES HUGE VOLUME AT HIGHER PRICES
SIGNALS THE DISTRIBUTION PHASE."
When there was less volume, the price was lower. Professionals were
accumulating. After the price runs, the volume increases. The professionals
bought low and sold high. The amateurs bought high (and will soon enough
sell low). In older books about market manipulation and stock promotion,
which I've recently studied, the markup price referred to THREE times higher
than the floor. The floor is the launchpad for the stock. For example, if
one looks at the stock price and finds a steady flatline on the stock's
chart of around 10 cents, then that range is the FLOOR. Basically, the
markup phase can go as high as the market manipulator is capable of taking
it. From my observations, a good markup should be able to run about five to
ten times higher than the floor, with six to seven being common. The market
manipulator will do everything in his power to keep you OUT OF THE STOCK
until the share price has been marked up by at least two-three times,
sometimes resorting to "shaking you out" until after he has accumulated
enough shares. Once the markup has begun, the stock chart will show you one
or more spikes in the
volume -- all at much higher prices (marked up by the manipulator, of
course). That is DISTRIBUTION and nothing else.
Example: Look at Software Control Systems (Alberta:XVN), in which I
purchased shares after it had been marked up five times.
There were eight days of 500,000 (plus) shares trading hands, with one day
of 750,000 shares trading hands. Market manipulator(s) dumping shares into
the volume at higher prices. WHENEVER you see HUGE volume after the stock
has risen on a 75 degree angle, the distribution phase has started and you
are likely to be buying in -- at or near the stock's peak price.
Example: Look at Diamond Fields (TSEFR), which never increased at a 75
degree angle and did not have abnormal volume
spikes, yet in less than two years ran from C$4 to C$160/share.
Example: Look at Bre-X Minerals (Alberta:BXM), which did not experience its
first 75 degree angle, with huge volume until July
14th, 1995. The next two trading days, BXM went down and stayed around
C$12/share for two weeks. The volume had been 60% higher nearly a month
earlier, with only a slight price increase. Each high volume and spectacular
increase in BXM's share price was met with a price retreat and leveling off.
"Suddenly," BXM wasn't trading at C$2/share; it was at C$170/share.... up
8500% in less than a year!
In both of the above cases, major Canadian newspapers ran extremely negative
stories about both companies, at one time or
another. In each instance, just before another share price run up, retail
investors fled the stock! Just before both began yet another
run up! Successful short-term speculators generally exit any stock run up
when the volume soars; amateurs get greedy and buy at those points.
"RULE NUMBER FIVE: THE MARKET MANIPULATOR WILL ALWAYS TRY TO GET YOU TO BUY
AT THE HIGHEST, AND SELL AT THE LOWEST PRICE
POSSIBLE."
Just as the manipulator will use every available means to invite you to "the
party," he will savagely and brutally drive you away from "his stock" when
he has fleeced you. The first falsehood you assume is that the stock
promoter WANTS you to make a bundle by investing in his company. So begins a
string of lies that run for as long as your stomach can take it.
You will get the first clue that "you have been had" when the stock stalls
at the higher level. Somehow, it ran out of steam and you
are not sure why. Well, it ran out of steam because the market manipulator
stopped running it up. It's over inflated and he can't
convince more people to buy. The volume dries up while the share price seems
to stall. LOOK AT THE TRADING VOLUME, NOT THE SHARE PRICE! When earlier,
there may have been 500,000 shares trading each day for eight out of 12
trading days (as in the case of Software Control Systems), now the volume
has slipped to 100,000 shares (or so) daily. There are some buyers there,
enough for the manipulator to continue dumping his paper, but only so long
as he can enlist one or more individuals/services to bang his drum.
He may continue feeding the promo guys a string of "promises" and "good news
down the road." (Believe me, this HAS happened to me!) But, when the news
finally arrives, the stock price goes THUD! This is entirely orchestrated by
a market manipulator. You'll see it in the trading volume, most of which is
CONTRIVED. A market manipulator will have various brokers buying and selling
the stock to give the APPEARANCE of increasing volume and price so that YOU
do start chasing it higher.
At some point during the stall stage, investors get fed up with the
non-performance of the stock. It drifts for a while, in a steady retreat,
with perhaps a short-lived spike in price and volume (the final signal that
the manipulator has finally offloaded ALL of his
paper). Then, the stock comes tumbling down -- having lost ALL of the
earlier share appreciation.
Sometimes, with the more cruel manipulators, they will throw in a little
false hope... giving you a little more rope so they can better
hang you. Just after a severe drop, there will be a "bottom fishing"
announcement which sends the share price up a bit on high volume, rises a
little more after that and then continues to drift. Meanwhile, you keep
getting "shaken out" through a cruel drip-drip water torture of the share
price's slow retreat. Again, virtually every movement is completely
orchestrated.
"RULE NUMBER SIX: IF THIS IS A REAL DEAL, THEN YOU ARE LIKELY TO BE THE LAST
PERSON TO BE NOTIFIED OR WILL BE DRIVEN OUT AT THE LOWER PRICES."
Like Jesse Livermore wrote, "If there's some easy money lying around, no one
is going to force it into your pocket." The same
concept can be more clearly understood by watching the tape. When a market
manipulator wants you into his stock, you will hear LOUD noises of stock
promotion and hype. If you are "in the loop," you will be bombarded from
many directions. Similarly, if he wants you out of the stock, then there
will be orchestrated rumors being circulated, rapid-fired at you again from
many directions. Just as good news may come to you in waves, so will bad
news.
You will see evidence of a VERY sharp drop in the share price with HUGE
volume. That is you and your buddies running for the
exits. If the deal is really for real, the market manipulator wants to get
ALL OF YOUR SHARES or as many as he can... and at the lowest price he can.
Whereas before, he wanted you IN his market, so he could dump his shares to
you at a higher price, NOW when he sees that this deal IS for real, he wants
to pay as little as possible for those same shares... YOUR shares which he
wants to you part with, as quickly as possible.
The market manipulator will shake you out by DRIVING the price as low as he
can. Just as in the "accumulation" stage, he wants
to keep everything as quiet as possible so he can snap up as many of the
shares for himself, he will NOW turn down, or even turn off, the volume so
he can repeat the accumulation phase.
In the mining business, there seems to always be another "area play" around
the corner. Just as Voisey's Bay drifted into oblivion,
during the fourth quarter of 1995 and early into 1996, the same Voisey Bay
"wannabees" began striking deals in Indonesia. Some
even used new corporate entities. Same crooks, different shingles. The
accumulation phase was TOP SECRET. The noise level was deadingly silent. As
soon as the insiders accumulated all their shares, they let YOU in on the
secret.
"RULE NUMBER SEVEN: CONVERSELY, YOU WILL OFTEN BE THE LAST TO KNOW WHEN THIS
DEAL SHOWS SIGNS OF FAILURE."
Twenty-twenty hindsight will often show you that there was a "little
stumble" in the share price, just as the "assays were delayed"
or the "deal didn't go through." Manipulators were peeling off their paper
to START the downslide. And ACCELERATE it. The quick slide down makes it
improbable for your getting out at more than what you originally paid for
the stock... and gives you a better reason for holding onto it "a little
longer" in case the price rebounds. Then, the drifting stage begins and fear
takes over. And unless you have serves of steel and can afford to wait out
the manipulator, you will more than likely end up selling out at a cheap
price.
For the insider, marketmaker or underwriter is obliged to buy back all of
your paper in order to keep his company alive and maintain control of it.
The less he has to pay for your paper, the lower his cost will be to
commence his stock promotion again... at some future date. Even if his
company has no prospects AT ALL, his "shell" of a company has some value
(only in that others might want to use that structure so they can run their
own stock promotion). So, the manipulator WILL buy back his paper. He just
wants to make sure that he pays as little for those shares as possible.
"RULE NUMBER EIGHT: THE MARKET MANIPULATOR WILL COMPEL YOU INTO THE STOCK SO
THAT YOU DRIVE UP ITS PRICE SHARES."
Placing a Market Order or Pre-Market Order is an amateur's mistake,
typifying the US investor -- one who assumes that thinly
traded issues are the same as blue chip stocks, to which they are
accustomed. A market manipulator (traders included here) can jack up the
share price during your market order and bring you back a confirmation at
some preposterous level. The Market Manipulator will use the "tape" against
you. He will keep buying up his own paper to keep you reaching for a higher
price. He will get in line ahead of you to buy all the shares at the current
price and force you to pay MORE for those shares. He will tease you and MAKE
you reach for the higher price so you "won't miss out." Miss out on what?
Getting your head chopped off, that's what!
One can avoid market manipulation by not buying during the huge price spikes
and abnormal trading volumes, also known as
chasing the stock to a higher price.
"RULE NUMBER NINE: THE MARKET MANIPULATOR IS WELL AWARE OF THE EMOTIONS YOU
ARE EXPERIENCING DURING A RUN UP AND A COLLAPSE AND WILL PLAY YOUR EMOTIONS
LIKE A PIANO."
During the run up, you WILL have a rush of greed which compels you to run
into the stock. During the collapse, you WILL
have a fear that you will lose everything... so you will rush to exit. See
how simple it is and how clear a bell it strikes? Don't think this formula
isn't tattooed inside the mind of every manipulator. The market manipulator
will play you on the way up and play you on the way down. If he does it very
well, he will make it look like someone else's fault that you lost money!
Promise to fill up your wallet? You'll rush into the stock. Scare you into
losing every penny you have in that stock? You'll run away screaming with
horror! And vow to NEVER, ever speculate in such stocks again. But many of
you still do.... The manipulator even knows how to bring you back for yet
another play.
What actors! No wonder Vancouver is sometimes called
"Hollywood North."
"FINAL RULE: A NEW BATCH OF SUCKERS ARE BORN WITH EVERY NEW PLAY."
The Financial Markets are a Cruel, Unkind and Dangerous Playing Field, one
place where the newest amateurs are generally
fleeced the most brutally.... usually by those who KNOW the above rules.
Just as I have a duty to ensure that each of you understand how this game is
played, YOU now have that same duty to guarantee
that your fellow speculator understands these rules. Just as I would be a
criminal for not making this data known to you, YOU would be just as
criminal to keep it a secret. There will always be an unsuspecting, trusting
fool whom the rabid dogs will tear to shreds, but it does NOT have to be
this way.
IF every subscriber made this essay broadly known to his friends,
acquaintances and family, and they passed it on to their
friends, word of mouth could cause many of these market manipulators to
pause. IF this effort were done strenuously by many,
then perhaps the financial markets could weed out the crooked manipulators
and the promoters could bring us more legitimate
plays.
The stock markets are a financing tool. The companies BORROW money from you,
when you invest or speculate in their companies. They want their share price
going higher so they can finance their deal with less dilution of their
shares... if they are good guys. But, how would you feel about a friend or
family member who kept borrowing money from you and never repaid it? That
would be theft, plain and simple. So, a market manipulator is STEALING your
money. Don't let him do it anymore. Insist that the company in which you
invest be honest or straight... or find another company in which to
speculate. Your money talks in LOUDER volumes than any stock promotion
scheme. ALWAYS refuse any deal which smells wrong.
Refuse to tolerate the scams prevalent in the financial markets. This can
ONLY be accomplished by KNOWING and USING the above rules. Thoroughly
COMPLETE your due diligence on a company before risking a dime. Dig up the
Insider Reports to find out who is blowing out their paper, how often they
are blowing out their paper and whatever happened to their "last play"
