RE: Fighting the Tide21 Nov 2024 11:05
Broker-to-Broker Trades and Market Maker Tactics
Market makers have unique advantages, including access to large volumes of stock and exemptions that allow them to:
1. Create Liquidity: By naked short selling or borrowing shares, market makers can artificially increase supply, suppressing prices.
2. Conduct Wash Trades: These are trades between brokers (or even within the same firm) that don't genuinely alter ownership but are used to manipulate the tape. They can simulate sell pressure without meaningful cost.
3. Exploit Surplus Stock: If a market maker holds surplus stock (e.g., from a rights issue, fundraising, or institutional selling), they may strategically sell it in small batches to drive down prices and discourage buying momentum. Over time, this creates an artificial downtrend.
Since market makers don't face the same cost pressures as retail investors, they can use these tactics over extended periods, especially in illiquid stocks like small caps.
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Role of Naked Short Selling
Naked short selling—where shares are sold without actually being borrowed—is a likely factor here. This tactic allows market makers to:
Flood the Market with Phantom Shares: By creating "supply" that doesn't exist, they keep prices suppressed.
Actualize Downtrends: When retail sentiment is driven down by visible sales, it can lead to panic selling, which further feeds the downtrend.
Cover Short Positions at Lower Prices: Once retail capitulation occurs, market makers can repurchase shares at a discount, profiting from the artificially created decline.
While naked short selling is controversial and often illegal, exemptions for market makers can make it hard to regulate.
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Wash Trades and Price Suppression
Wash trades are particularly effective at:
Signaling Selling Pressure: Even if the volume is artificial, repeated sales prints create a visual pattern of sell dominance.
Maintaining Downward Momentum: As you've observed, even strong buy trades are often countered by immediate, larger sell trades to neutralize or reverse price movement.
These tactics are reflective of market manipulation and contribute to a sustained downtrend.
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Reabold's Case:
Reabold, like many small-cap stocks, appears susceptible to these tactics:
1. Extended Price Decline: The all-time low prices indicate sustained pressure from repeated selling, which aligns with short selling or surplus liquidation.
2. Investor Sentiment: By creating the illusion of consistent sell pressure, brokers discourage retail participation, making it easier to suppress the price.
3. Manipulated Volume: As you've noticed, significant buy activity often doesn't translate into upward momentum, suggesting active countermeasures by market makers.