I have always wondered if the big stock traders were able to manipulate the stock market and how they did it. Now I am confident that I know the answer to both of these questions, and you will too, after you read this article, and view the information in the links provided. I describe and illustrate the process they use to manipulate stocks in easy to understand terms.
First, so you don't think I am totally out of my mind making these allegations, here is a link for you to view a YouTube video of CNBC's Jim Cramer titled, " Market Manipulation is a fact " and a link to Jim Cramer's Wikepedia where you can find the following excerpt-. In the video, Cramer described activities used by hedge fund managers to manipulate stock prices - some of debatable legality and others illegal.
Cramer said, "A lot of times when I was short at my hedge fund When I was positioned short-meaning I needed it down-I would create a level of activity beforehand that could drive the futures. Even though I have traded in the stock market for many years, it wasn't until I recently starting trading stocks using TD Ameritrade's ThinkorSwim trading platform, where I can quickly analyze stock trading over various time periods day s , month s , year s as well as over short intervals even as short as a minute , that I began to realize how shorts were manipulating the market.
Since May 1st of this year when a short attack began against Herbalife NYSE: HLF , I have been following all of the activity surrounding that company including all news stories as well as all daily trading activity.
Before I began researching the information for this article, I began to see HLF trading activity that didn't make sense to me. In fact, it really didn't make sense that two companies under different ownership and management but mainly just sharing the commonality of being MLM's, Herbalife's and Nu Skin's NYSE: NUS shares were both attacked at the same time. Here is a link to both company's charts- HLF chart and NUS Chart , where you can see how their share price has traded over the last few months.
Use 6 month time period as well as candlestick format for the charts. You might think an additional , shares shorted sounds like a small number of shares shorted since Herbalife has over million shares outstanding. However, when you realize that there was only actually 11 trading days during that time period, and when you also understand that the shorts used computerized selling and buying of shares at opportune times to manipulate the share price, you should understand why they were able to control Herbalife's share price during that time period, to stop the upward share price momentum, and then to drive the share price slightly down.
This process can be used by hedge funds to either pump up a stock or to trash a stock but since I am using Herbalife 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 those longs that hold the stock. Next, high volume shorting takes place to drive the company's share price down.
As the short attack continues, more people parade out news to continue to put questions in the back of investors' minds. On a daily basis, shorts 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. 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 from the computerized trading. 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 each day, I witnessed volume dramatically increasing as the shorts tried to insure Herbalife's share price closed 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 Herbalife during this current short attack, but I do believe Herbalife 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, I 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 Herbalife is already in its 5th month of being attacked by shorts, and if history repeats itself, anyone buying shares of Herbalife HLF at this time should be in for some nice gains over the next 6 to 12 months as Herbalife's share price rises back to and above where it was when this short attack began.
The shorts greatest fear is that people will figure out their lies to 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 will be learning more about this scheme. Also I have to believe this manipulation has to involve collusion between all the major players in the Herbalife short attack since it wouldn't work like it has 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 those 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 working together. If you are wondering why would they short more shares even when a company like Herbalife is obviously a healthy growing company. Here is the reason. At least that's what the shorts hope for.
On top of trying to obtain direct profits from controlling the share price, and since shorts know more about the direction of the share price, shorts 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 too. As you can see from the large dollar amounts involved in Herbalife's short attack, these must be big players and they must have a lot of influence over the marketplace which brings me to my next subject. I am really concerned about the investment reporting we are getting from the media especially from CNBC's reporters Jim Cramer and Herb Greenberg.
Jim Cramer, who apparently couldn't recommend Herbalife's stock during the last short attack in which included the same short arguments currently being used, " Herbalife Short Attack: It appears Cramer just abandoned those Herbalife longs again including those that purchased their shares based on his recommendation to join his hedge fund buddies that are short Herbalife.
I have fully explained, in the following linked article, why Herbalife made the decisions they made surrounding this issue and have emailed this information to both Cramer and Greenberg with no change or response by either of them- "" Response To Greenberg: Since David Einhorn's innocuous questions on Herbalife's conference call seems to be the event that started the short attack on Herbalife, and since Einhorn loves poker, I will use poker terms to explain how you can determine whether a stock is shorted for good reasons or just a bluff.
If you believe you have a winning hand in poker, you want everyone else to put in as much cash as they possible can. You don't want to tip them off in any fashion that you have the winning hand. You want the pot to as big as possible when you show your hand. If you don't have a good hand and are bluffing, you need to be sneaky putting in bets when you really know you don't have a good hand hoping that the other players fold their winning hands.
You don't even want others to put more cash in the pot since you want them to drop out of the game. First you need to understand that the object for shorts is selling as high as they can and then buying as low as they can if they have to cover their short position. For those of you who are not familiar with selling stock short, here is a link to explain short selling. Also when longs are selling their positions, they will always try to sell their shares at the highest price they can get.
If you knew a company's share price was really overpriced for any reason, you would not do anything to tip anyone else off until you had shorted all the shares you could. Then, given the right opportunity to show your hand, you would explain your position as to why the shares were over priced in a logical fashion. Yes, there would be other shorts jump in to help drive the share price down but it wouldn't necessarily be about driving the share price down based mainly upon high volume trading.
You would be ok with longs coming into the market to drive the share price up more cash in the pot since it would give you more of an opportunity to short at a higher price before your real prediction came true. If you were a short bluffing basically manipulating a shares' price about a company's overvalued share price, you might not want to draw attention to yourself since you could get accused of stock manipulation so you would hope or plan for others to get involved and to present seemingly good reasons to short the stock.
You would want to put as much fear into longs as possible and would use high volume short trading as well as buying to drive the share price down as low as you can and as long as you can. You really want the longs to fold and to get out of the game. If you are consistently seeing sellers overwhelming buyers driving a share price down as a stock seems to be going up, I can assure you it's probably shorts selling since longs are totally motivated to sell their shares at the highest possible selling price.
Here is what one stock investment reporter from one of America's premier financial magazines, who had wrote some articles about Herbalife's situation which I disagreed with, emailed me I will not give his name out as I don't want to cause him problems.
I would think so. A lot of hedge-fund types I come across are skittish about appearing in the media whatsoever, much less being portrayed correctly as tanking a stock. I believe that stock market manipulation by big players is a major problem. I know this article focuses on one stock, but just like cockroaches, if you can find one, I am sure there are a lot more out there.
The only way we are going to make changes in this society is to make as many people, especially our elected officials, aware of this problem as we can.
I am sure this problem steals money from the vast majority of our investments and retirement programs.
How The Big Players Manipulate The Stock Market - G. Hudson | Seeking Alpha
If you agree with me, and you want to help me try to do something about this problem, by getting the word out, please email this article, post to facebook, twitter, LinkedIn, etc. As for me, I am long HLF shares and I still believe that Herbalife shares are a great buy as per my article, " Herbalife Shorts' Problems Could Be Great Buying Opportunity For Longs ".
I am long HLF. Blog posts are not selected, edited or screened by Seeking Alpha editors. How The Big Players Manipulate The Stock Market Sep.
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First, so you don't think I am totally out of my mind making these allegations, here is a link for you to view a YouTube video of CNBC's Jim Cramer titled, " Market Manipulation is a fact " and a link to Jim Cramer's Wikepedia where you can find the following excerpt- "In March , a December interview from TheStreet. He also stated that some hedge fund managers spread false rumors to drive a stock down: Cramer said that one strategy to keep a stock price down is to spread false rumors to reporters he described as "the Pisanis of the world".
The comment was a reference to CNBC correspondent Bob Pisani , who reports from the trading floor of the New York Stock Exchange.
He also discussed giving information to "the bozo reporter from The Wall Street Journal" to get an article published. Cramer said this practice, although illegal, is easy to do "because the SEC doesn't understand it. How it works This process can be used by hedge funds to either pump up a stock or to trash a stock but since I am using Herbalife as an example, we will discuss that situation.
We got to get you wired for positive. It could be as simple as a well-advised desire to not invite more regulatory scrutiny.