PokerVertigo, first of all I would like to thank you for not refering to me as a basher,I don't bash to lower the PPS I only bash a CEO if it is relevent. As you may or may not know there are many ways to dilute a stock valuation. here is an example; Dilution/Accumulation/Manipulation @ its best.
I don't have any problems with flipping a stock IMO, it is the little guys way of beating the system. its basically all we have.
Bid and Ask Volume and how it relates to Technical Analysis of a Stock
It has become painfully obvious that big money Market Makers have a stranglehold on the little guy in the OTCBB stock market. I have personally observed many times more than a 1:2 (bid:ask) volume ratio of the trades executing at the bid versus the ask, only to be followed by the bid and ask ticking down in stocks that I own. A discussion of the technical mechanics of an OTCBB investor's reality is in order here.
A comprehensive study of OTCBB time and sales reports with actual buys and sells listed proves that certain market participants sell at the ask, and buy at the bid. These reports were for about a year available to anyone requesting them free of charge from https://www.otcbb.com/secure_asp/tradeact_report_request.asp?type=tands, however, recently a pricing structure was devised that makes these reports much too expensive for many investors. Nevertheless, these reports, when combined with other data that report the time and price level of the inside bid and ask, do establish that some market participants are able to buy at bid and sell at ask.
Why is this noteworthy?
Because a common technical method of measuring accumulation/distribution of a stock is to measure the volume of trades at the bid (selling), and compare it to the volume of trades at the ask (buying), and to note the ratio of the two. Theoretically speaking a ratio of 1:1 should represent an equilibrium level where price neither goes up or down, since it shows that buying and selling activity are roughly equal. If there is more trading volume at the ask than at the bid, then price should go up, and conversely if there is more trading volume at the bid, then price should go down.
But in the OTCBB world, it's common knowledge that a ratio of about 1:2.5 or 1:3 (volume at bid to volume at ask) is required to move the price up, and this up move is often delayed by days and sometimes weeks. On the other hand, for prices to move down requires only fractionally less than 1:3. Prices commonly drop when the ratio is 1:2 or less.
Why is the ratio so much greater the theoretical 1:1?
In these instances which happen everyday in most OTCBB stocks there is more trading occurring at the ask than the bid, yet price falls! Why?
Certain market participants are allowed to routinely buy at the bid and sell at the ask, and these participants do much more selling at the ask than buying at the bid, in order too fool the general public that uses technical analysis in their trading arsenal into believing more buying is taking place than is actually occurring. Additionally the market participants doing the majority of the selling at the ask (the Market Makers) are not the same entities as the market participants doing the buying at the bid. It is my contention that this is allowed by the SEC to deliberately fool the "little guy" thereby allowing the Market Makers to conceal sells in the ticker tape while simultaneously making them appear to be buys because they occur at the ask. This should be considered Market Maker Manipulation, but unfortunately under the current rules it is allowed. Has the SEC been implicated in fraud by allowing this type of unusual buying and selling activity by certain market specialists while at the same time other market participants, namely the general public do not receive such favorable prices for similar trades? Volume Manipulation and the "Market Maker orchestrated Pump and Dump"
Volume Manipulation is another area where Market Maker's collude to create the impression that there is more activity, accumulation or distribution, then there actually is. For example, Market Maker A buys 100K from Market Maker B, who then sells them to Market Maker C, then Market Maker D buys them, making it appear as if there is 300K worth of volume, when all that was happening was a "Churn" game that served to inflate volume for the day. For a more in depth discussion of how this works, please see The Forbes article titled "One Day Soon the Music's Going to Stop" http://www.forbes.com/forbes/072996/5803072a.htm
The core aspect of this manipulation is the structure of NASDAQ's ACT system itself, and which can be discerned by studying the buys and sells as they are reported in the OTCBB time and sales reports, and by studying the reporting as it occurs in the ACT system. The major distinguishing feature here is that Market Maker to Market Maker transactions are recorded on the sell side only (same as an investor buy), in contrast, the ACT system records both buys and sells by Market Makers when the trade is being made with the general public.
Lets look at a few examples, and please note that the side of the trade is inverted depending upon the market participants "point of view." When a Market Maker buys from the general public, it's the same as an investor sell, it is recorded as an ACT system buy or "B". When a Market Maker sells to the General public, which is the same as an investor buy, it is recorded as an ACT system sell or "S". So the Market Makers report both buys and sells to the general public. Unfortunately here is where the rules change to the detriment of the average investor: A Market Maker to Market Maker transaction is recorded solely on the sell side as an "S", not on the buy "B" side. If a Market Maker buys from another Market Maker, it is not recorded in the ACT system as a "B", it is only the selling Market Maker that reports it. This is the core reason that it appears in the real time price stream for OTCBB stocks that a bid:ask ratio of greater than 1:3 is often required in order for prices to move up, since a Market Maker to Market Maker transaction represents no change in the supply demand equilibrium of a stock. The excess over 1:1 is Market Makers trading with each other.
All sorts of technical accumulation/distribution models use volume in their calculations, and this churn game where Market Makers sell to each other can be used to manipulate the buying and selling of many who use such technical models in their trading. These types of churn trades are all but impossible to discern from retail trades and to my knowledge are currently completely impossible to discern in real-time. The Market Makers combine this "churn" trading with artificial price walk downs and naked shorting, and you have the potential of complete Market Maker Manipulation of the whole price and volume chart. This would be exceedingly profitable to conspirators at critical technical junctures such as the apex of triangles and quiet, pre-breakout trading ranges to make it appear that the order flow is going opposite to the "real" order flow.
Why are MarketMaker's are allowed to report these churn trades (Market Maker to Market Maker) as volume, since supposedly a Market Maker is only concerned with "making a market?" There is no legitimate need for volume figures reported in real time price streams as well as end of day price reports to include Market Maker to Market Maker transactions. After all, who is the market being made for? Another Market Maker?
Volume manipulation is a type of "pump and dump" scheme orchestrated by and for the benefit of the Market Makers themselves. It works like this: The Market Makers start selling to each other to artificially inflate the volume figure over a period of days to generate investor interest, but they do not yet start Naked Shorting. Now after some number of investors have laid down their hard earned money and there has been some price appreciation, Market Makers then start to Naked Short the position, effectively capturing the Investors Money, as price erodes due to the dilution that the creation of the short positions cause. This capture of investors money occurs in the event the investor has a stop loss figured into their trading strategy which mandates them to limit their losses, so they sell due to price erosion caused by Naked Shorting. Stop loss's are always recommended in beginner's guides to technical analysis and automated trading strategies.
I wonder why?
In any case these stop loss strategies combined with the flawed reporting structure of the real time price stream, line the Market Makers pockets with huge sums of money.
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