It is not flawed at all. In fact its really rather common in penny stocks. Most pump and dumps see this exact activity.
The stock runs up on heavy buying but than crashes on heavy selling. Its typically known as selling into the rally.
New shareholders will get excited while old shareholders take the opportunity to exit with a break even or profit. In some cases even at a reduced loss.
Of course in true pump and dumps its the same but the sellers are preset as promotion or insiders.
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