...and on the Nasdaq it's not even against their (self regulated) rules for MMs to front run their large Institutional clients' orders ! So frankly it's not a question of whether manipulation occurs (it does continually to varying degrees), but rather about looking for signs of it at any given time (Upthrusts, testing, stopping volume etc). But if you, the outsider, dare to try your hand at "insider trading", oh boy, you had better watch out !
rog1111
rog1111
Porks said:
purplekiwi
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Don't know if this has been posted here before - makes interesting reading:
Richard Ney on the Role of the Specialist
by Michael Templain, a fellow Bender
Fred Jacquot, the big Bender, le Gros Ventre as it were, has asked me to provide a better, if somewhat longer, explanation of the writings of Richard Ney; a task I am happy to perform.
"The story is told that after he had been deported to Italy, Lucky Luciano granted an interview in which he described a visit to the floor of the New York Stock Exchange. When the operations of floor specialists had been explained to him, he said, 'A terrible thing happened. I realized I'd joined the wrong mob'" (1Ney, 8).
It was with these words that Richard Ney began his first of three books on the nature of the New York Stock Exchange. Ney wrote over 20 years ago, a time when a 750 Dow was high and today's volumes were beyond imagining. Some of his material is dated, and must be read in the light in which it was written. But the main premise of his books is still true: that the specialist exists not to ensure the free and orderly trade of stock in a particular company, but to fatten upon the innocence and ignorance of the small investor.
The New York Stock Exchange is not an auction market (2Ney, 86), though many investors still hold onto that image. It is a rigged market. Volume is an effect of price. Prices are controlled absolutely by the specialists, the 'market makers' in individual stocks. It was this discovery that led Mr. Ney to eventually give us small investors a priceless gift: enlightenment.
"Studying the transactions in each stock, I became immediately conscious that, on too many occasion to be a coincidence, a stock would advance from its morning low and then, often during the afternoon, would show an up-tick of a half-point or more on a large block of anywhere from 1,500 to 5,000 or more shares. This transaction seemed to herald a transformation in what was taking place, for immediately thereafter the stock would begin to drop like Newton's apple. Before I could find out what caused this, another question presented itself: What caused the same thing to happen at the low point in that stock's decline? For it was also apparent that a block of stock of the same size often appeared on a down-tick of a half-point or more, after which the stock quickly rallied. Together these two facts seemed to give a stock's pattern continuity. At the end of several days of investigation, I discovered that these transactions at the top and bottom of a stock's price pattern were for the specialist's own account. ... Clod that I was, I had at last recognized that, although the study of human nature may not be fashionable among economists, it is never out of season" (2Ney, 9).
The specialist is part of a system. First, he is part of that rare fraternity of men who are all specialists in an exchange. It is a small private club, to whose membership one can only be born. The specialists of the Dow 30 exhibit the spirit of 'all for one, and one for all'. If one of the 30 is having problems, the other 29 wait for him, before they move onto their next agreed upon campaign (2Ney, 172). The rest of the specialists take their lead from watching the Dow 30.
But the system is more extensive and more powerful than just the specialists. The specialists are the heart of the exchange. The exchange, in turn, has practical control of the major corporations, banks, insurance companies, and brokerage houses in this country. These, in turn, influence news reporting and the regulatory agencies.
ADVANTAGES OF BEING A SPECIALIST
The specialist has many advantages, many tools to use to pry dollars from unsuspecting investors and mutual funds. Chief among these advantages is his book. In his book he can see at a glance all the buy and sell orders from the public and the funds. His book tells him of potentially massive sales above and below his current price. This gives him a great advantage when he is trading on his own investment and omnibus accounts.
Because of his book, the specialist sees shifts in trends long before anyone else. This gives him a great advantage. The specialist will buy heavily at the bottom of a slide (at wholesale) then advance prices and sell, at heavy volume, at the peak of the rally (retail). He will then sell short and take prices down. The turning points of a rally will be marked by heavly volume in the Dow 30 (3Ney, 85-89).
When he desires he can even make large block trades without entering them into his book. In this way the public is never made aware of those trades. Should the specialist want to supply a buy or sell order from his own accounts, rather than from public orders on book, he can and will do so (1Ney, 156). Ney cites specific examples when his customers orders were ignored while the specialist completed orders for his own accounts.
When serving as the market maker, the broker's broker, the specialist trades from his Trading Account, which is to be used to service the needs of the market. However, he also has Investment Accounts (plural). His Segregated Investment Accounts put him directly into competition with every other investor in his stock. The reason for he has segregated investment accounts is that they enable him to convert regular income into long-term capital gains (1Ney, 113).
In addition, he also trades on Omnibus accounts, taking orders from a friendly bank on behalf of friends, family, and himself (1Ney, 58). Although he is not allowed to be both long and short in his Trading account, he can take the opposite stance in his Investment or Omnibus accounts (3Ney, 130).
A Specialist will often not have any shares in his trading or omnibus accounts. If public demand for shares suddenly increases, the Specialist is more than happy to supply those shares to the public by short selling. This, of course, forces the Specialist to take the price down soon thereafter, so that he may cover his short sales at the lower price. Or, the Specialist may sell from his Investment Accounts, establishing a middle or long term high (1Ney, 61), and then take the price down. Whichever strategy he employs, a large public demand for stock ultimately drives the price of that stock down, not up.
Distribution of large amounts of stock can be done from the specialist's trading account, usually as short sales. The trading account can then be covered by transferring stock from the long-term investment accounts into the trading account (1Ney, 64).
The existence of the specialist's Investment and Omnibus Accounts is ultimately detrimental to the public. "In a stock with only a small capitalization or floating supply, the segregation of large blocks into long-term investment accounts for the specialist further decreases the supply of the stock available to the public" (1Ney, 61)
The specialist has absolute control over price. He can match the buys with the sells in any way he sees fit. He can raise the price of the stock 3 points in three trades, and open the next day down 5.
The seeming unpredictability of stock prices is due to the fact that prices exist at the whim of the specialist. A stock is only worth what the specialist is willing to pay for it at the moment. The fluctuations you see are, in fact, the evidence of how the specialist is working out his inventory problems to meet his short-term, intermediate-term, and long-term goals (2Ney, 172). The specialist will sometimes 'leap frog' his prices up or down, creating a gap. This is done to keep a group of investors from buying or selling at a particular price. 'Leap Frogs' show specialist intent.
Ney offers specific examples where specialists opened stocks considerably lower:
August 8, 1967 Chicago and Northwestern Railroad opened down 39 points.
October 21, 1968 one of the preferred stocks of TRW opened down 28 points.
February 4, 1970 Memorex opened down 29 1/2 points (1Ney, 15)
(FOR RECENT EVIDENCE OF SPECIALIST CONTROL OF PRICES CLICK HERE.)
"With $8,000, you can buy $10,000 worth of stock, but with $8,000 in stock, any Stock Exchange member can buy $160,000 worth of stock for his own segregated investment account" (1Ney, 112).
Because most investors have margin accounts, and the margin account agreement allows their brokers to lend their shares, specialists have an unlimited number of shares to borrow and sell short (1Ney, 68).
Margin agreements also allow the broker to use their customer's shares as collateral without the customer's knowledge or permission. This practice is fraught with dangers. In November, 1963, the Ira Haupt brokerage firm (NYSE), which dealt in both stocks and commodities was caught unwittingly in a scheme by one of its commodities customers to leverage nonexistent salad oil. The failure wiped out the partners of the firm and left it owing some $37 million in debts. "To compound Haupt's and the New York Stock Exchange's problems, it was impossible to return the stock to customers because the stock (held by the brokerage firm for its customers) had been pledged to banks by Haupt" (1Ney, 122).
Margin accounts usually allow the broker to borrow any cash in the account to use for his own purposes at no interest, even to lend back to the customer for margin purchases, at interest (1Ney, 119).
At the bottom of a cycle of a stock, having panicked customers into selling, the brokers and specialist borrow the customers' money to make their own long-term purchases; using their advantageous margin to acquire large amounts of stock. At the top of the cycle the process is reversed. Customers are paid back their money by the brokers and the specialist selling their shares to customers at a profit. The insiders even have extra cash to loan customers for margin purchases (1Ney, 136).
Another powerful tool for the specialist is the short sale. Though the specialist is responsible for 85 percent of the short selling done in a stock, the Exchanges are loathe to print any timely data on specialist short sales (2Ney, 94)(3Ney, 234). The specialist uses the short sale to control both downward and upward movements of stock (3Ney, 88).
The private investor or mutual fund can only sell short on an up- tick. The up-tick rules serves only to trap the public into selling short at the bottom, as the specialist drives the price down without a single up-tick for the public's use (1Ney, 72). But the specialist need not even create an up-tick to sell short. The SEC has been careful not to publicize its rule 10a-1(d), in which sub-paragraphs (1) through (9) exempt the specialist from the up-tick rule (2Ney, 97)(3Ney, 126, 215).
The Securities Exchange Act of 1934 prohibits pegging, the act of artificially holding a stock's price at a certain level for the advantage of the person or persons doing the pegging. However, SEC rule X-9A6 (1940) allows pegging by specialists in order to 'maintain an orderly market' while a large-block distribution of shares is taking place (2Ney, 117).
THE CORPORATION, THE SPECIALIST, AND THE EXCHANGE
The specialists and brokers hold shares "in street name" for investors, and therefore can vote the proxies for those shares. Officers in a corporation must report to the SEC any trading they do in the shares of their own company. Yet the Specialist reports his profits in trading the shares in that same corporation to no one (1Ney, 54-55).
The specialist, one of his partners, a friendly broker, their lawyers, or their bankers, often sit on the company's board of directors, which makes the specialist privy to information before the average trader. Where an officer of a corporation is held strictly accountable to the SEC for his use of 'inside information', the specialist and fellow brokers are accountable to no one (1Ney, 54-55).
"It is an ideal situation. When you control a corporation's proxies, everyone is sympathetic to your point of view and your choice of directors. This is the other reason why nearly every major corporation listed with the Exchange (NYSE, M.T.) has a broker or a broker's banker on its board. It gives the exchange a pipeline to that corporation" (1Ney, 90).
Large brokerage houses, large banks, and the New York Stock exchange use dummy corporations as fronts to hold large portions of stocks in corporations. A list from any large corporation of its largest stockholders will be a roll of these very dummy corporations, who show up on list after list of major stock holders in America's largest corporations (2Ney, 19-23).
The intertwining of interests runs even deeper when the relations of Wall Steet's top Law firms are examined. For example, in 1974 the New York Stock Exchange's legal counsel also represented Chase Manhattan Bank. Both entities, through their dummy corporations, were large stockholders in scores of major U.S. corporations (2Ney, 26).
THE EXCHANGE, THE SEC, THE FEDERAL RESERVE, AND THE WHITE HOUSE
"The bankers' man, Senator Carter Glass, who steered the Federal Reserve Act through Congress in 1913, had maintained that the Federal Reserve banks would be merely 'lenders of money.' The only collateral they were to accept was notes that could be paid when, in the course of business, goods and services had been manufactured and distributed. However, almost from the day of its inception, the Federal Reserve System set about making loans on common stocks" (1Ney, 103).
Who sits on the Federal Reserve Board? ... Chief officers of banks and corporations, all of whose companies are controlled by the Exchange (1Ney, 103-105).
Billions, perhaps trillions of dollars worth of stocks are now held by banks as collateral for loans. This too works to the advantage of the specialists. For, to protect their interests, banks will issue stop orders to sell the stock before it falls below a certain price. The specialist holds those stop orders in his book and therefore knows exactly where a large number of shares can be had, and at what price they can be purchased. One quick sweep down those ranges of prices will deliver to the specialist the inventory he desires for short and mid-term purposes (1Ney, 101).
On June 30, 1934 President Roosevelt appointed Joseph Kennedy to be the first Chairman of the SEC. Only 4 months before, Kennedy, along with Mason Day, Harry Sinclair, Elisha Walker, and others were found to be responsible for operating 'pools' that were actively manipulating stock. When these, "poolsters withdrew and the boom collapsed the administration denounced the men who operated them" (1Ney, 215). But what's a little denouncement between friends?
The stock markets had been headed downhill since December of 1968. On May 26, 1969 a party was held at the Nixon White House. In attendance were John Mitchell, Maurice Stans, Peter Flannigan, thirty five guests from Wall Street, fourteen industrialists, seven bankers, five heads of mutual and pension funds, and two heads of insurance companies. The next day a bull rally began on Wall Street. May 27th saw the Dow Jones 30 average rise by 5 per cent in one day (2Ney, 71).
On April 17, 1971, President Nixon, who along with Attorney General Mitchell had been a Wall Street lawyer (Maurice Stans was a broker), appeared for photographs with friends from the New York Stock Exchange. Nixon recommended the public to invest in the market. By April 28th the market was in a steep decline. Nixon circulated, "to 1,300 editors, editorial writers, broadcast news directors, and Washington bureau chiefs a list of the stocks of ten corporations that had advanced during the past year" (2Ney, 32).
There is a revolving door between the exchange and Washington. SEC Chairmen 'retire' to go to work for the Exchanges or major brokerage houses at many times their government salaries (2Ney, 50-63). SEC Chairman Hamer Budge was found by Senator Proxmire's investigation to be making frequent trips to Minneapolis to confer with officials of IDS. IDS was under investigation at the time by the SEC. After leaving the SEC, Budge took the position of Chairman of the Board with IDS (2Ney, 56).
NEWS AND FINANCIAL REPORTING
It is highly unlikely that we will see news reports critical of U.S. stock exchanges, or of the specialist system. There is a simple reason for this. All news organiztions are corporations and do but reflect their management's views. Corporations that own media have specialists influencing the choice of management. Newspapers, magazines, and television are but extensions of the corporate world.
When Richard Ney's first book, The Wall Street Jungle, came out it was on the New York Times best seller list for 11 months. Yet the New York Times would not review it. The Wall Street Journal refused to take an ad from a New York bookstore that featured The Wall Street Jungle (2Ney, 30).
All three of the major networks were wary of having Ney appear. NBC banned only two people from appearing on the Tonight show with Johnny Carson: Ralph Nader and Richard Ney. Not only do large banks, brokerage firms, and corporations advertise on television, they also are the largest stock holders (2Ney, 33- 34).
SPECIALIST STRATEGY
The specialist should be thought of as a merchant with some rather unique inventory problems and opportunities. His goal, always, is to buy at wholesale prices and to sell at retail. This applies to his actions in the course of trading day as well as a year of trading.
At the bottom of a slide the specialist will buy heavily for his trading, investment, and omnibus accounts. His goal then becomes to raise the price of his stock with his wholesale inventory intact. In practice, though, he may have to sell shares to meet public demand. This will cause him, then, to lower the price to re-accumulate his inventory before he can proceed to higher levels.
A rally begins while the price of the average stock is still falling. "Major rallies begin and end with the unexpected," (3Ney, 184).
To stimulate public demand for his stock, near the high the specialist will raise the angle of the rising prices dramatically for the stock. True to one of Ney's axioms that prices beget volume, the public will rush into the market place at the rally high. The specialist can now sell his accumulated inventory to fill the increased demand. Heavy Dow 30 volume at the high is evidence of heavy short sales by the specialists (3Ney, 113).
When the specialist has sold all his inventory, and has sold short, he will then begin a downward slide of prices so necessary to his plans. Slides are a mirror of rallies. Near the bottom, the specialist will increase the angle of price decline, alarming investors, scaring them into selling their shares to the specialist who needs them to cover his short sales, and to build a new inventory at wholesale. The media will remain bullish, or cautiously optimistic throughout a slide, until the last two weeks, when they will turn suddenly bearish (3Ney, 158).
TIPS FROM RICHARD NEY:
Specialists in the most active stocks will require more time than their fellow specialists to move stocks up or down, or to cover at the top of a rally or the bottom of a slide (2Ney, 84-85).
Specialists may use a rally as a 'stalking horse' for a later rally. Price is used like a geiger counter to locate volume (3Ney, 149).
During the typical bear market, or slide, the specialists will usually bring prices up on Fridays, to keep investors hopes alive (2Ney, 92).
Leaders of the rally in the Dow 30 will often act as 'screens' for the price declines of the other 24 or 25 Dow stocks.
Each stock exhibits its own distinct pattern or rhythm of price behavior (2Ney, 189).
THINGS OF WHICH TO BE AWARE
How can you spot the nadir of each high and low? Ney says to look at volume very closely. In particular look at the volume of the individual Dow 30 Industrial stocks (2Ney, 171). Get to know these specialists' habits. Follow what they do. Patterns of behavior will emerge.
Ney emphasized that a sense of timing was critical for survival in the market (2Ney, 149).
Ney was convinced that detecting Specialist short selling was a key. Specialist short selling at the peak of a rally should be detectable through increased volume.
Richard Ney used charts extensively. Ney was quick to point out that what is really being measured in his charts is not the behavior of the masses in the marketplace, but the techniques of the specialist in an individual stock as he maneuvers to solve short-term, intermediate-term, and long-term inventory problems (1NEY, 259).
Ney points to the gaps in prices that develop when a specialist is trying to 'catch up' with the market. These gaps, be they up or down, signal specialist intent (2Ney, 172).
"Investors assume that what happens in the economy or to the corporation in terms of earnings or sales determines the trend of stock prices. ... The most misleading element in this type of analysis is that it ignores the basic needs and motivations of the specialist system" (2Ney, 150).
We, as consumers react to certain critical numbers. Specialists know this. Specialists use the 10's (10, 20, 30, etc.) and 5's (5, 15, 25, etc.) in their strategies. They will use these numbers to elicit heavier buying or selling from the public. Often too, though, they will avoid critical numbers to avoid buying or selling stock when they do not wish to do so (2Ney, 155-156 & 163).
NEY'S SMALL INVESTOR TRADING RECCOMENDATIONS (1Ney, 297-301)
1. Do not buy the acknowledged leader in a field. Buy the number 2 or 3 company. These companies are more likely to be subject to bull raids by the specialists (1Ney, 298).*
2. "Nothing puzzles me more than an investor's willingness to pay more than fifty dollars a share for stocks. Buy low priced stocks. It's percentages you're after and you'll get them in these stocks in a bull market" (1Ney, 298).*
3. Invest only in stocks listed on the NYSE. *
4. Do not buy secondary offerings from your broker.
5. Buy only stocks whose prices have fallen at least 35 to 50 percent.
6. "The rule, 'Cut your losses and let your profits ride,' was invented by a broker" (1Ney, 298).
7. The average investor need not worry about tax brackets, so do not hesitate to sell at a profit. "A short-term gain is better than a long-term loss" (1Ney, 299).
8. Own your stock. Do not use margin. *
9. Do not sell short. *
10. Do not allow your stock to be borrowed (via a margin account; M.T.) *
11. Credit balances should be immediately transferred to your bank. *
12. Do not leave your stock with your broker in street name.
13. Invest only in growth oriented, not income, stocks.
14. 4 to 5 stocks in a portfolio is plenty.
15. Make arrangements with your bank to receive your stock.
16. If there has been a major advance from the summer lows, look for the public to begin selling 6 months hence.
17. Big block sales at the end of a run-up (usually marked by heavy volume) marks the imminent decline in price.
18. Look for bull raids in May, up from the April 15th tax low.
19. Never enter stop or limit orders. *
20. If you are interested in a stock, learn its specialist's habits.
21. Stocks that are ideal for bull raids are those that decline as close as possible to an angle of 45 degrees.
* These are items with which we Benders disagree, or feel that need modification or explanation. Please see THE BENDER'S BLEND at this site, when it has been revised (M.T.).
Works Cited:
1Ney, Richard. THE WALL STREET JUNGLE, fifth printing. New York: Grove Press, Inc., 1970.
2Ney, Richard. THE WALL STREET GANG, third printing. New York: Praeger Publishers, Inc., 1974.
3Ney, Richard. MAKING IT IN THE MARKET. New York: McGraw-Hill, 1975.
--------------------------------------------------------------------------------
Note from the Bender:
We benders agree with much of what Richard Ney wrote. We disagree with much of it also. The reader should note that Mr. Ney wrote at a time when the volume of trading was much much lower than it is today. With today's volume it is much more difficult to spot the highs and lows of a stock using volume only. Ney also advised his long term customers to stay with Dow 30 and other blue chip stocks. Still, his discoveries, particularly on critical price points, make up some of the tools we Benders use. That makes his ideas worthy of our attention, even though we do not choose to use or act upon them all.
The Bender
Richard Ney on the Role of the Specialist
by Michael Templain, a fellow Bender
Fred Jacquot, the big Bender, le Gros Ventre as it were, has asked me to provide a better, if somewhat longer, explanation of the writings of Richard Ney; a task I am happy to perform.
"The story is told that after he had been deported to Italy, Lucky Luciano granted an interview in which he described a visit to the floor of the New York Stock Exchange. When the operations of floor specialists had been explained to him, he said, 'A terrible thing happened. I realized I'd joined the wrong mob'" (1Ney, 8).
It was with these words that Richard Ney began his first of three books on the nature of the New York Stock Exchange. Ney wrote over 20 years ago, a time when a 750 Dow was high and today's volumes were beyond imagining. Some of his material is dated, and must be read in the light in which it was written. But the main premise of his books is still true: that the specialist exists not to ensure the free and orderly trade of stock in a particular company, but to fatten upon the innocence and ignorance of the small investor.
The New York Stock Exchange is not an auction market (2Ney, 86), though many investors still hold onto that image. It is a rigged market. Volume is an effect of price. Prices are controlled absolutely by the specialists, the 'market makers' in individual stocks. It was this discovery that led Mr. Ney to eventually give us small investors a priceless gift: enlightenment.
"Studying the transactions in each stock, I became immediately conscious that, on too many occasion to be a coincidence, a stock would advance from its morning low and then, often during the afternoon, would show an up-tick of a half-point or more on a large block of anywhere from 1,500 to 5,000 or more shares. This transaction seemed to herald a transformation in what was taking place, for immediately thereafter the stock would begin to drop like Newton's apple. Before I could find out what caused this, another question presented itself: What caused the same thing to happen at the low point in that stock's decline? For it was also apparent that a block of stock of the same size often appeared on a down-tick of a half-point or more, after which the stock quickly rallied. Together these two facts seemed to give a stock's pattern continuity. At the end of several days of investigation, I discovered that these transactions at the top and bottom of a stock's price pattern were for the specialist's own account. ... Clod that I was, I had at last recognized that, although the study of human nature may not be fashionable among economists, it is never out of season" (2Ney, 9).
The specialist is part of a system. First, he is part of that rare fraternity of men who are all specialists in an exchange. It is a small private club, to whose membership one can only be born. The specialists of the Dow 30 exhibit the spirit of 'all for one, and one for all'. If one of the 30 is having problems, the other 29 wait for him, before they move onto their next agreed upon campaign (2Ney, 172). The rest of the specialists take their lead from watching the Dow 30.
But the system is more extensive and more powerful than just the specialists. The specialists are the heart of the exchange. The exchange, in turn, has practical control of the major corporations, banks, insurance companies, and brokerage houses in this country. These, in turn, influence news reporting and the regulatory agencies.
ADVANTAGES OF BEING A SPECIALIST
The specialist has many advantages, many tools to use to pry dollars from unsuspecting investors and mutual funds. Chief among these advantages is his book. In his book he can see at a glance all the buy and sell orders from the public and the funds. His book tells him of potentially massive sales above and below his current price. This gives him a great advantage when he is trading on his own investment and omnibus accounts.
Because of his book, the specialist sees shifts in trends long before anyone else. This gives him a great advantage. The specialist will buy heavily at the bottom of a slide (at wholesale) then advance prices and sell, at heavy volume, at the peak of the rally (retail). He will then sell short and take prices down. The turning points of a rally will be marked by heavly volume in the Dow 30 (3Ney, 85-89).
When he desires he can even make large block trades without entering them into his book. In this way the public is never made aware of those trades. Should the specialist want to supply a buy or sell order from his own accounts, rather than from public orders on book, he can and will do so (1Ney, 156). Ney cites specific examples when his customers orders were ignored while the specialist completed orders for his own accounts.
When serving as the market maker, the broker's broker, the specialist trades from his Trading Account, which is to be used to service the needs of the market. However, he also has Investment Accounts (plural). His Segregated Investment Accounts put him directly into competition with every other investor in his stock. The reason for he has segregated investment accounts is that they enable him to convert regular income into long-term capital gains (1Ney, 113).
In addition, he also trades on Omnibus accounts, taking orders from a friendly bank on behalf of friends, family, and himself (1Ney, 58). Although he is not allowed to be both long and short in his Trading account, he can take the opposite stance in his Investment or Omnibus accounts (3Ney, 130).
A Specialist will often not have any shares in his trading or omnibus accounts. If public demand for shares suddenly increases, the Specialist is more than happy to supply those shares to the public by short selling. This, of course, forces the Specialist to take the price down soon thereafter, so that he may cover his short sales at the lower price. Or, the Specialist may sell from his Investment Accounts, establishing a middle or long term high (1Ney, 61), and then take the price down. Whichever strategy he employs, a large public demand for stock ultimately drives the price of that stock down, not up.
Distribution of large amounts of stock can be done from the specialist's trading account, usually as short sales. The trading account can then be covered by transferring stock from the long-term investment accounts into the trading account (1Ney, 64).
The existence of the specialist's Investment and Omnibus Accounts is ultimately detrimental to the public. "In a stock with only a small capitalization or floating supply, the segregation of large blocks into long-term investment accounts for the specialist further decreases the supply of the stock available to the public" (1Ney, 61)
The specialist has absolute control over price. He can match the buys with the sells in any way he sees fit. He can raise the price of the stock 3 points in three trades, and open the next day down 5.
The seeming unpredictability of stock prices is due to the fact that prices exist at the whim of the specialist. A stock is only worth what the specialist is willing to pay for it at the moment. The fluctuations you see are, in fact, the evidence of how the specialist is working out his inventory problems to meet his short-term, intermediate-term, and long-term goals (2Ney, 172). The specialist will sometimes 'leap frog' his prices up or down, creating a gap. This is done to keep a group of investors from buying or selling at a particular price. 'Leap Frogs' show specialist intent.
Ney offers specific examples where specialists opened stocks considerably lower:
August 8, 1967 Chicago and Northwestern Railroad opened down 39 points.
October 21, 1968 one of the preferred stocks of TRW opened down 28 points.
February 4, 1970 Memorex opened down 29 1/2 points (1Ney, 15)
(FOR RECENT EVIDENCE OF SPECIALIST CONTROL OF PRICES CLICK HERE.)
"With $8,000, you can buy $10,000 worth of stock, but with $8,000 in stock, any Stock Exchange member can buy $160,000 worth of stock for his own segregated investment account" (1Ney, 112).
Because most investors have margin accounts, and the margin account agreement allows their brokers to lend their shares, specialists have an unlimited number of shares to borrow and sell short (1Ney, 68).
Margin agreements also allow the broker to use their customer's shares as collateral without the customer's knowledge or permission. This practice is fraught with dangers. In November, 1963, the Ira Haupt brokerage firm (NYSE), which dealt in both stocks and commodities was caught unwittingly in a scheme by one of its commodities customers to leverage nonexistent salad oil. The failure wiped out the partners of the firm and left it owing some $37 million in debts. "To compound Haupt's and the New York Stock Exchange's problems, it was impossible to return the stock to customers because the stock (held by the brokerage firm for its customers) had been pledged to banks by Haupt" (1Ney, 122).
Margin accounts usually allow the broker to borrow any cash in the account to use for his own purposes at no interest, even to lend back to the customer for margin purchases, at interest (1Ney, 119).
At the bottom of a cycle of a stock, having panicked customers into selling, the brokers and specialist borrow the customers' money to make their own long-term purchases; using their advantageous margin to acquire large amounts of stock. At the top of the cycle the process is reversed. Customers are paid back their money by the brokers and the specialist selling their shares to customers at a profit. The insiders even have extra cash to loan customers for margin purchases (1Ney, 136).
Another powerful tool for the specialist is the short sale. Though the specialist is responsible for 85 percent of the short selling done in a stock, the Exchanges are loathe to print any timely data on specialist short sales (2Ney, 94)(3Ney, 234). The specialist uses the short sale to control both downward and upward movements of stock (3Ney, 88).
The private investor or mutual fund can only sell short on an up- tick. The up-tick rules serves only to trap the public into selling short at the bottom, as the specialist drives the price down without a single up-tick for the public's use (1Ney, 72). But the specialist need not even create an up-tick to sell short. The SEC has been careful not to publicize its rule 10a-1(d), in which sub-paragraphs (1) through (9) exempt the specialist from the up-tick rule (2Ney, 97)(3Ney, 126, 215).
The Securities Exchange Act of 1934 prohibits pegging, the act of artificially holding a stock's price at a certain level for the advantage of the person or persons doing the pegging. However, SEC rule X-9A6 (1940) allows pegging by specialists in order to 'maintain an orderly market' while a large-block distribution of shares is taking place (2Ney, 117).
THE CORPORATION, THE SPECIALIST, AND THE EXCHANGE
The specialists and brokers hold shares "in street name" for investors, and therefore can vote the proxies for those shares. Officers in a corporation must report to the SEC any trading they do in the shares of their own company. Yet the Specialist reports his profits in trading the shares in that same corporation to no one (1Ney, 54-55).
The specialist, one of his partners, a friendly broker, their lawyers, or their bankers, often sit on the company's board of directors, which makes the specialist privy to information before the average trader. Where an officer of a corporation is held strictly accountable to the SEC for his use of 'inside information', the specialist and fellow brokers are accountable to no one (1Ney, 54-55).
"It is an ideal situation. When you control a corporation's proxies, everyone is sympathetic to your point of view and your choice of directors. This is the other reason why nearly every major corporation listed with the Exchange (NYSE, M.T.) has a broker or a broker's banker on its board. It gives the exchange a pipeline to that corporation" (1Ney, 90).
Large brokerage houses, large banks, and the New York Stock exchange use dummy corporations as fronts to hold large portions of stocks in corporations. A list from any large corporation of its largest stockholders will be a roll of these very dummy corporations, who show up on list after list of major stock holders in America's largest corporations (2Ney, 19-23).
The intertwining of interests runs even deeper when the relations of Wall Steet's top Law firms are examined. For example, in 1974 the New York Stock Exchange's legal counsel also represented Chase Manhattan Bank. Both entities, through their dummy corporations, were large stockholders in scores of major U.S. corporations (2Ney, 26).
THE EXCHANGE, THE SEC, THE FEDERAL RESERVE, AND THE WHITE HOUSE
"The bankers' man, Senator Carter Glass, who steered the Federal Reserve Act through Congress in 1913, had maintained that the Federal Reserve banks would be merely 'lenders of money.' The only collateral they were to accept was notes that could be paid when, in the course of business, goods and services had been manufactured and distributed. However, almost from the day of its inception, the Federal Reserve System set about making loans on common stocks" (1Ney, 103).
Who sits on the Federal Reserve Board? ... Chief officers of banks and corporations, all of whose companies are controlled by the Exchange (1Ney, 103-105).
Billions, perhaps trillions of dollars worth of stocks are now held by banks as collateral for loans. This too works to the advantage of the specialists. For, to protect their interests, banks will issue stop orders to sell the stock before it falls below a certain price. The specialist holds those stop orders in his book and therefore knows exactly where a large number of shares can be had, and at what price they can be purchased. One quick sweep down those ranges of prices will deliver to the specialist the inventory he desires for short and mid-term purposes (1Ney, 101).
On June 30, 1934 President Roosevelt appointed Joseph Kennedy to be the first Chairman of the SEC. Only 4 months before, Kennedy, along with Mason Day, Harry Sinclair, Elisha Walker, and others were found to be responsible for operating 'pools' that were actively manipulating stock. When these, "poolsters withdrew and the boom collapsed the administration denounced the men who operated them" (1Ney, 215). But what's a little denouncement between friends?
The stock markets had been headed downhill since December of 1968. On May 26, 1969 a party was held at the Nixon White House. In attendance were John Mitchell, Maurice Stans, Peter Flannigan, thirty five guests from Wall Street, fourteen industrialists, seven bankers, five heads of mutual and pension funds, and two heads of insurance companies. The next day a bull rally began on Wall Street. May 27th saw the Dow Jones 30 average rise by 5 per cent in one day (2Ney, 71).
On April 17, 1971, President Nixon, who along with Attorney General Mitchell had been a Wall Street lawyer (Maurice Stans was a broker), appeared for photographs with friends from the New York Stock Exchange. Nixon recommended the public to invest in the market. By April 28th the market was in a steep decline. Nixon circulated, "to 1,300 editors, editorial writers, broadcast news directors, and Washington bureau chiefs a list of the stocks of ten corporations that had advanced during the past year" (2Ney, 32).
There is a revolving door between the exchange and Washington. SEC Chairmen 'retire' to go to work for the Exchanges or major brokerage houses at many times their government salaries (2Ney, 50-63). SEC Chairman Hamer Budge was found by Senator Proxmire's investigation to be making frequent trips to Minneapolis to confer with officials of IDS. IDS was under investigation at the time by the SEC. After leaving the SEC, Budge took the position of Chairman of the Board with IDS (2Ney, 56).
NEWS AND FINANCIAL REPORTING
It is highly unlikely that we will see news reports critical of U.S. stock exchanges, or of the specialist system. There is a simple reason for this. All news organiztions are corporations and do but reflect their management's views. Corporations that own media have specialists influencing the choice of management. Newspapers, magazines, and television are but extensions of the corporate world.
When Richard Ney's first book, The Wall Street Jungle, came out it was on the New York Times best seller list for 11 months. Yet the New York Times would not review it. The Wall Street Journal refused to take an ad from a New York bookstore that featured The Wall Street Jungle (2Ney, 30).
All three of the major networks were wary of having Ney appear. NBC banned only two people from appearing on the Tonight show with Johnny Carson: Ralph Nader and Richard Ney. Not only do large banks, brokerage firms, and corporations advertise on television, they also are the largest stock holders (2Ney, 33- 34).
SPECIALIST STRATEGY
The specialist should be thought of as a merchant with some rather unique inventory problems and opportunities. His goal, always, is to buy at wholesale prices and to sell at retail. This applies to his actions in the course of trading day as well as a year of trading.
At the bottom of a slide the specialist will buy heavily for his trading, investment, and omnibus accounts. His goal then becomes to raise the price of his stock with his wholesale inventory intact. In practice, though, he may have to sell shares to meet public demand. This will cause him, then, to lower the price to re-accumulate his inventory before he can proceed to higher levels.
A rally begins while the price of the average stock is still falling. "Major rallies begin and end with the unexpected," (3Ney, 184).
To stimulate public demand for his stock, near the high the specialist will raise the angle of the rising prices dramatically for the stock. True to one of Ney's axioms that prices beget volume, the public will rush into the market place at the rally high. The specialist can now sell his accumulated inventory to fill the increased demand. Heavy Dow 30 volume at the high is evidence of heavy short sales by the specialists (3Ney, 113).
When the specialist has sold all his inventory, and has sold short, he will then begin a downward slide of prices so necessary to his plans. Slides are a mirror of rallies. Near the bottom, the specialist will increase the angle of price decline, alarming investors, scaring them into selling their shares to the specialist who needs them to cover his short sales, and to build a new inventory at wholesale. The media will remain bullish, or cautiously optimistic throughout a slide, until the last two weeks, when they will turn suddenly bearish (3Ney, 158).
TIPS FROM RICHARD NEY:
Specialists in the most active stocks will require more time than their fellow specialists to move stocks up or down, or to cover at the top of a rally or the bottom of a slide (2Ney, 84-85).
Specialists may use a rally as a 'stalking horse' for a later rally. Price is used like a geiger counter to locate volume (3Ney, 149).
During the typical bear market, or slide, the specialists will usually bring prices up on Fridays, to keep investors hopes alive (2Ney, 92).
Leaders of the rally in the Dow 30 will often act as 'screens' for the price declines of the other 24 or 25 Dow stocks.
Each stock exhibits its own distinct pattern or rhythm of price behavior (2Ney, 189).
THINGS OF WHICH TO BE AWARE
How can you spot the nadir of each high and low? Ney says to look at volume very closely. In particular look at the volume of the individual Dow 30 Industrial stocks (2Ney, 171). Get to know these specialists' habits. Follow what they do. Patterns of behavior will emerge.
Ney emphasized that a sense of timing was critical for survival in the market (2Ney, 149).
Ney was convinced that detecting Specialist short selling was a key. Specialist short selling at the peak of a rally should be detectable through increased volume.
Richard Ney used charts extensively. Ney was quick to point out that what is really being measured in his charts is not the behavior of the masses in the marketplace, but the techniques of the specialist in an individual stock as he maneuvers to solve short-term, intermediate-term, and long-term inventory problems (1NEY, 259).
Ney points to the gaps in prices that develop when a specialist is trying to 'catch up' with the market. These gaps, be they up or down, signal specialist intent (2Ney, 172).
"Investors assume that what happens in the economy or to the corporation in terms of earnings or sales determines the trend of stock prices. ... The most misleading element in this type of analysis is that it ignores the basic needs and motivations of the specialist system" (2Ney, 150).
We, as consumers react to certain critical numbers. Specialists know this. Specialists use the 10's (10, 20, 30, etc.) and 5's (5, 15, 25, etc.) in their strategies. They will use these numbers to elicit heavier buying or selling from the public. Often too, though, they will avoid critical numbers to avoid buying or selling stock when they do not wish to do so (2Ney, 155-156 & 163).
NEY'S SMALL INVESTOR TRADING RECCOMENDATIONS (1Ney, 297-301)
1. Do not buy the acknowledged leader in a field. Buy the number 2 or 3 company. These companies are more likely to be subject to bull raids by the specialists (1Ney, 298).*
2. "Nothing puzzles me more than an investor's willingness to pay more than fifty dollars a share for stocks. Buy low priced stocks. It's percentages you're after and you'll get them in these stocks in a bull market" (1Ney, 298).*
3. Invest only in stocks listed on the NYSE. *
4. Do not buy secondary offerings from your broker.
5. Buy only stocks whose prices have fallen at least 35 to 50 percent.
6. "The rule, 'Cut your losses and let your profits ride,' was invented by a broker" (1Ney, 298).
7. The average investor need not worry about tax brackets, so do not hesitate to sell at a profit. "A short-term gain is better than a long-term loss" (1Ney, 299).
8. Own your stock. Do not use margin. *
9. Do not sell short. *
10. Do not allow your stock to be borrowed (via a margin account; M.T.) *
11. Credit balances should be immediately transferred to your bank. *
12. Do not leave your stock with your broker in street name.
13. Invest only in growth oriented, not income, stocks.
14. 4 to 5 stocks in a portfolio is plenty.
15. Make arrangements with your bank to receive your stock.
16. If there has been a major advance from the summer lows, look for the public to begin selling 6 months hence.
17. Big block sales at the end of a run-up (usually marked by heavy volume) marks the imminent decline in price.
18. Look for bull raids in May, up from the April 15th tax low.
19. Never enter stop or limit orders. *
20. If you are interested in a stock, learn its specialist's habits.
21. Stocks that are ideal for bull raids are those that decline as close as possible to an angle of 45 degrees.
* These are items with which we Benders disagree, or feel that need modification or explanation. Please see THE BENDER'S BLEND at this site, when it has been revised (M.T.).
Works Cited:
1Ney, Richard. THE WALL STREET JUNGLE, fifth printing. New York: Grove Press, Inc., 1970.
2Ney, Richard. THE WALL STREET GANG, third printing. New York: Praeger Publishers, Inc., 1974.
3Ney, Richard. MAKING IT IN THE MARKET. New York: McGraw-Hill, 1975.
--------------------------------------------------------------------------------
Note from the Bender:
We benders agree with much of what Richard Ney wrote. We disagree with much of it also. The reader should note that Mr. Ney wrote at a time when the volume of trading was much much lower than it is today. With today's volume it is much more difficult to spot the highs and lows of a stock using volume only. Ney also advised his long term customers to stay with Dow 30 and other blue chip stocks. Still, his discoveries, particularly on critical price points, make up some of the tools we Benders use. That makes his ideas worthy of our attention, even though we do not choose to use or act upon them all.
The Bender
Am I being thick here,
or isn't it the case that for a market to be manipulated consistently, then price and volume will tend to show the same signs as the manipulation occurs? (Or a small range of signatures that analysis will eventually help uncover).
ie if (say) 24 hrs before option expiry the 'big boys' decide to move the market in a certain direction, then next time the expiry comes round they'll also try to manipulate it, and after several such manipulations they'll be leaving 'footprints' (so to speak) that are recognisable ... and in all likelihood more and more recognisable every time they do it? I can see this working for a while, I just don't see it occurring endlessly - other equally astute traders will learn to spot the signs and get in as the fix is applied, surely?
Isn't TA about spotting these patterns for fun and profit? If the markets are consistently manipulated to any degree then it ought to be visible - a lot of people here (myself included) are forever seeking to identify signatures that presage a fall or rise, regular manipulation is right up my street... a pattern I can get my PC to locate and tell me about, surely? The mere fact that you believe you have spotted reasonably obvious movements suggests that they aren't too difficult to locate.
This sounds more like consiracy theory, and why a stock moves is - to be honest - of diminishing interest to me, as long as I'm trading it in the right direction I don't give a fig for why it shifted... I also find it hard to accept that of around 2000 UK and 8000 US stocks, or for that matter the FT100 and SP100 or 500, or the DJ, they're as susceptible to being nudged as is commonly suggested - if you want imply weakness, nudge the price down, then scoop up longs as the less astute sell in droves then surely another big player is quite likely to spot that you are "artificially" reducing the price, and they can step in , buy lumps up, and say 'thanks for the free money'? I'm very cynical - I've gone past the cynicism where I think 'they' are out to cheat me by sytematic manipulation of everything from the LSE to Butlin's Donkey Derby results, I'm cynical enough to believe that 'they' are often screwing me up because they're incompetent and this is the best they can manage.
WRT Ney - sorry, as a matter of commonsense (my own, very personal opinion) I take anything from 20 years ago with a HUGE pinch of salt., even if published by somebody with a track record (I'm obviously a bit short on my history here, the only Ney I recall was Napoleon's cavalry general in 1815).. backtesting various ideas has generally proved this a sound premise. Markets today are not traded the same way, the advent of computers has made a large difference... human greed, supply, demand are not different, but the speed at which things occur is markedly so - opportunities for arbitrage, for example, are now (arguably) the domain of those with the best data/computer network/programmers rather than an area that those with a 'nose' or 'knack' might once have held sway.
As examples, from the above (no insult etc intended here, I just genuinely disagree)
1) The rule, 'Cut your losses and let your profits ride,' was invented by a broker"
- Which broker was that then? I know a lot of very sensible people who believe this, on the other hand.
2. "Nothing puzzles me more than an investor's willingness to pay more than fifty dollars a share for stocks. Buy low priced stocks. It's percentages you're after and you'll get them in these stocks in a bull market" (1Ney, 298).*
- Berkshire Hathaway is currently running at about $85,000 a share and seems like something I might have invested in quite happily had I known that a few years back. On the other hand I doubt that RCO (last close 3c when I checked) is probably less of an investement.
9. Do not sell short. *
- Utter cobblers
- As the disclaimer points out, 'the Bender' was apt to pick and choose... follow these rules if you want to go broke. Was Ney trading so successfully in the 70's he had time to pen three books whilst carrying the money to the bank vault?
Dave
(Being cynical, sigh)
or isn't it the case that for a market to be manipulated consistently, then price and volume will tend to show the same signs as the manipulation occurs? (Or a small range of signatures that analysis will eventually help uncover).
ie if (say) 24 hrs before option expiry the 'big boys' decide to move the market in a certain direction, then next time the expiry comes round they'll also try to manipulate it, and after several such manipulations they'll be leaving 'footprints' (so to speak) that are recognisable ... and in all likelihood more and more recognisable every time they do it? I can see this working for a while, I just don't see it occurring endlessly - other equally astute traders will learn to spot the signs and get in as the fix is applied, surely?
Isn't TA about spotting these patterns for fun and profit? If the markets are consistently manipulated to any degree then it ought to be visible - a lot of people here (myself included) are forever seeking to identify signatures that presage a fall or rise, regular manipulation is right up my street... a pattern I can get my PC to locate and tell me about, surely? The mere fact that you believe you have spotted reasonably obvious movements suggests that they aren't too difficult to locate.
This sounds more like consiracy theory, and why a stock moves is - to be honest - of diminishing interest to me, as long as I'm trading it in the right direction I don't give a fig for why it shifted... I also find it hard to accept that of around 2000 UK and 8000 US stocks, or for that matter the FT100 and SP100 or 500, or the DJ, they're as susceptible to being nudged as is commonly suggested - if you want imply weakness, nudge the price down, then scoop up longs as the less astute sell in droves then surely another big player is quite likely to spot that you are "artificially" reducing the price, and they can step in , buy lumps up, and say 'thanks for the free money'? I'm very cynical - I've gone past the cynicism where I think 'they' are out to cheat me by sytematic manipulation of everything from the LSE to Butlin's Donkey Derby results, I'm cynical enough to believe that 'they' are often screwing me up because they're incompetent and this is the best they can manage.
WRT Ney - sorry, as a matter of commonsense (my own, very personal opinion) I take anything from 20 years ago with a HUGE pinch of salt., even if published by somebody with a track record (I'm obviously a bit short on my history here, the only Ney I recall was Napoleon's cavalry general in 1815).. backtesting various ideas has generally proved this a sound premise. Markets today are not traded the same way, the advent of computers has made a large difference... human greed, supply, demand are not different, but the speed at which things occur is markedly so - opportunities for arbitrage, for example, are now (arguably) the domain of those with the best data/computer network/programmers rather than an area that those with a 'nose' or 'knack' might once have held sway.
As examples, from the above (no insult etc intended here, I just genuinely disagree)
1) The rule, 'Cut your losses and let your profits ride,' was invented by a broker"
- Which broker was that then? I know a lot of very sensible people who believe this, on the other hand.
2. "Nothing puzzles me more than an investor's willingness to pay more than fifty dollars a share for stocks. Buy low priced stocks. It's percentages you're after and you'll get them in these stocks in a bull market" (1Ney, 298).*
- Berkshire Hathaway is currently running at about $85,000 a share and seems like something I might have invested in quite happily had I known that a few years back. On the other hand I doubt that RCO (last close 3c when I checked) is probably less of an investement.
9. Do not sell short. *
- Utter cobblers
- As the disclaimer points out, 'the Bender' was apt to pick and choose... follow these rules if you want to go broke. Was Ney trading so successfully in the 70's he had time to pen three books whilst carrying the money to the bank vault?
Dave
(Being cynical, sigh)
purplekiwi
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Dave - You are not being thick - as you say, when big money enters the market it does leave footprints, and anyone who can read a chart correctly (price and volume) can usually spot it.
I am not going to defend Richard Ney, although i do agree with some of his points.
The main point I think to be made is that manipulation does occur. How, why and by whom and for what reason is irrelevant jus be aware that it happens. Ignore the news, ignore what so called experts are saying and trade on what the charts are telling you. The footprints are there!
I am not going to defend Richard Ney, although i do agree with some of his points.
The main point I think to be made is that manipulation does occur. How, why and by whom and for what reason is irrelevant jus be aware that it happens. Ignore the news, ignore what so called experts are saying and trade on what the charts are telling you. The footprints are there!
roguetrader
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Porks said:
As dbp said, that is a contradiction right there, and imho a dangerous theory to run with in the market, lack of demand or over supply and price will fall, increase in demand and lack of supply and price rise. If nobody wants what you've got you can't ask more money for it.
The assumption that markets are manipulated, I totally agree with, that's fairly common knowledge I would say, but it is through supply and demand that they are manipulated. Just watch closely when buy and sell programs are at work.
VSATrader
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I may be a new voice in these boards, but I have traded successfully for 8 years using a program called VSA or now called TradeGuider. If you look back to the time of Ney and Wycoff and Keen, Livermore. What did they use to make money? the ticker tape, and that only gave the last traded price and the last traded volume. With this they could see the balance of supply and demand, they could see accumulation and distribution as it unfolded in the market, yes the market is controlled by professional money who can see both sides of the market and act immediately to better their own accounts, you would do the same if you were able to. This is how people make money, usually the few taking from the masses.
The market works on these basic principles: Supply and demand, and no supply, and no demand, if you can learn to read this, then you can make a very good living and if your very good and position trade and your correct, then you can become rich, it is possible because many do (Authur W Cutten as example).
I made a guy £4000.00 in Treasury's this summer and he gave me a cheque for 1 thousand, I then bought him a book by Wyckoff and asked a few weeks later if he had read the book? but his reply was"I did not as it looked a bit old fashioned" I have not spoken to him for a while.
What's my point? well it is this; It is all well and good using TA, but you'll never make any money, Why? because RSI, MACD etc rely's on a maths formula for averaging the closing price on bars, as the market works on supply and demand and is traded my humans buying and selling creating volume, these indicators cannot possibly work as traded volume is not taken into account. The top traders in the world only look at prices and volume and they are the ones making vast fortunes. They also are not weak holders who are liable to sell in whip soaring or a sudden move up or down to catch stop losses and to shake margin traders out of good position by panicking them.
Specialist's rise stock prices to bring in the public, they fill these orders by selling and short selling, when they have short sold to furnish public orders, they drop prices to re accumulate at wholesale prices, like a shopkeeper who buys at wholesale and sells to the public at retail, usually at a profit. This is how they stay in business.
Some of the threads in these groups are astounding, but Porky seems to have grasped some common sense, and he should make good profits by following the professional money, not fighting it though ignorance like the public, ever wondered 95% of people never make money in the markets?
The market works on these basic principles: Supply and demand, and no supply, and no demand, if you can learn to read this, then you can make a very good living and if your very good and position trade and your correct, then you can become rich, it is possible because many do (Authur W Cutten as example).
I made a guy £4000.00 in Treasury's this summer and he gave me a cheque for 1 thousand, I then bought him a book by Wyckoff and asked a few weeks later if he had read the book? but his reply was"I did not as it looked a bit old fashioned" I have not spoken to him for a while.
What's my point? well it is this; It is all well and good using TA, but you'll never make any money, Why? because RSI, MACD etc rely's on a maths formula for averaging the closing price on bars, as the market works on supply and demand and is traded my humans buying and selling creating volume, these indicators cannot possibly work as traded volume is not taken into account. The top traders in the world only look at prices and volume and they are the ones making vast fortunes. They also are not weak holders who are liable to sell in whip soaring or a sudden move up or down to catch stop losses and to shake margin traders out of good position by panicking them.
Specialist's rise stock prices to bring in the public, they fill these orders by selling and short selling, when they have short sold to furnish public orders, they drop prices to re accumulate at wholesale prices, like a shopkeeper who buys at wholesale and sells to the public at retail, usually at a profit. This is how they stay in business.
Some of the threads in these groups are astounding, but Porky seems to have grasped some common sense, and he should make good profits by following the professional money, not fighting it though ignorance like the public, ever wondered 95% of people never make money in the markets?
Strategic Trader
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to continuously make money in markets - you have to continously know exactly when and where to take the right positions and nothing tells you the EXACT point and time to do that- nothing at all - except hands on long term day in day out experience
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The point about manipulated stocks is that the predictability of a ramping operation is far greater than the unpredictability of the crowd and risk:reward profile is good. Manipulators are trying to create a false market but they have to generate some interesting price action to do this. To manipulate a stock you have to do certain things - e.g. read Gann or poacher turned gamekeeper Joe Kennedy's 1934 SEC act for guidance. Just got to accept that every now and then you will take a big hit from getting in at the wrong end of the ramp cycle or from dilution.
Ultimately stocks are ramped as pure money making exercises, window dressing at close of books, to facilitate divestment of a stake at higher prices by funds or their brokers/facilitators or by owners seeking to convert an equity stake in a failing company into reinvestable cash (e.g sunset industries trading at 5x book), or to facilitate an offering - this last is most dangerous as you just see the announcement before the market opens that you are the recipient of dilution unless you are prepared to increase your position. Not a good idea when you consider the purpose of ramping is to sell a stock at a value way above the value of the discounted cashflows accruing to shareholders.
WRT to futures, just look at stop running and the probes below known support levels etc. In my view not everything that looks like manipulation is, but sometimes it is.The larger the stock/market and the longer the timescale the less likely manipulation can be sustained even by the BoJ. In stocks the float that trades most days is a fraction of what is potentially available so unless they have mopped up the free float there is always the risk of a big holder or the herd spoiling the game. If a stock turns over its entire free float in days that tells it's own story.
As for the 'they', even in the tightly regulated US there have been a seemingly meaningless 152 convictions over the last 10 years for manipulation by 'they' but this probably represents the absolute pinnacle of the iceberg.
The longer I look at markets the more convinced I become that someone out there is acting on more than an ability to interpret early clues in price and volume. At risk of sounding like a conspiracist I am unable to rule out that there might be such a thing as policy maker level insider trading where things move ahead of regulatory changes or sensitive numbers.
Bottom line, sometimes stocks/markets go up, sometimes they are put up (or marked down).
Ultimately stocks are ramped as pure money making exercises, window dressing at close of books, to facilitate divestment of a stake at higher prices by funds or their brokers/facilitators or by owners seeking to convert an equity stake in a failing company into reinvestable cash (e.g sunset industries trading at 5x book), or to facilitate an offering - this last is most dangerous as you just see the announcement before the market opens that you are the recipient of dilution unless you are prepared to increase your position. Not a good idea when you consider the purpose of ramping is to sell a stock at a value way above the value of the discounted cashflows accruing to shareholders.
WRT to futures, just look at stop running and the probes below known support levels etc. In my view not everything that looks like manipulation is, but sometimes it is.The larger the stock/market and the longer the timescale the less likely manipulation can be sustained even by the BoJ. In stocks the float that trades most days is a fraction of what is potentially available so unless they have mopped up the free float there is always the risk of a big holder or the herd spoiling the game. If a stock turns over its entire free float in days that tells it's own story.
As for the 'they', even in the tightly regulated US there have been a seemingly meaningless 152 convictions over the last 10 years for manipulation by 'they' but this probably represents the absolute pinnacle of the iceberg.
The longer I look at markets the more convinced I become that someone out there is acting on more than an ability to interpret early clues in price and volume. At risk of sounding like a conspiracist I am unable to rule out that there might be such a thing as policy maker level insider trading where things move ahead of regulatory changes or sensitive numbers.
Bottom line, sometimes stocks/markets go up, sometimes they are put up (or marked down).
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VSA Trader, + Others,
I couldn't agree more.
The short selling at market tops by the manipulators really takes the biscuit, something I couldn't accept for ages.
'You mean they not only raise the price to create demand and get everybody long, they then have the cheek to go short and drop the market and cover their shorts to profit from the poor souls who they've just tricked into buying. They'd be stopped, it couldn't happen, what about the SEC.'
You see how innocent I was.
But all these tricks are not a bad thing, they do what they have to do to make it, and we can profit by following their tracks.
Price and volume,
Porks.
I couldn't agree more.
The short selling at market tops by the manipulators really takes the biscuit, something I couldn't accept for ages.
'You mean they not only raise the price to create demand and get everybody long, they then have the cheek to go short and drop the market and cover their shorts to profit from the poor souls who they've just tricked into buying. They'd be stopped, it couldn't happen, what about the SEC.'
You see how innocent I was.
But all these tricks are not a bad thing, they do what they have to do to make it, and we can profit by following their tracks.
Price and volume,
Porks.
VSATrader
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Well Porks,
You appear to have read Richard Ney's book, or have read something to that effect. Page 54, The Wall Street Gang, The SEC allows self regulation and never gives the specialist's a hard time as SEC directors move on to Wall Street directorships earning 5 times what they earned st the SEC, the public cannot sell on the uptick rule, but the specialist's can "To maintain an orderly market" allows specialist's to move prices round like a radar to detect volume and catch stop losses and to sell even when the public are not allowed.
Most of the big brokerage houses in NYC and Banks won huge piles of company stock, like GE, ABC, CBS etc, and this is why they dictate who says what and when, the proxie voter's (stock holders in street name) can put pressure on company directors to have on and not have on the show, or what news is reported. The specialist alway' have any news releases in advance as they hold seats o the board of directors on the company's they market, so they are insiders and have the power to know what is true and what is false news releases.
You can follow their tracks, because however they mislead you(market their stock). they always leave their footprint on the ticker tape, and anyone who can read this can see opportunitys to be had. They will also see the any unforseen news stories that the specialists might use to, I know this as I have had positions and suddenly some news comes out and I have had to close out my position as it has spiked in my direction, so you must assume that there are poeple in the know and they are active to make money.
Hope you find this intresting and educational.
VSA Trader
You appear to have read Richard Ney's book, or have read something to that effect. Page 54, The Wall Street Gang, The SEC allows self regulation and never gives the specialist's a hard time as SEC directors move on to Wall Street directorships earning 5 times what they earned st the SEC, the public cannot sell on the uptick rule, but the specialist's can "To maintain an orderly market" allows specialist's to move prices round like a radar to detect volume and catch stop losses and to sell even when the public are not allowed.
Most of the big brokerage houses in NYC and Banks won huge piles of company stock, like GE, ABC, CBS etc, and this is why they dictate who says what and when, the proxie voter's (stock holders in street name) can put pressure on company directors to have on and not have on the show, or what news is reported. The specialist alway' have any news releases in advance as they hold seats o the board of directors on the company's they market, so they are insiders and have the power to know what is true and what is false news releases.
You can follow their tracks, because however they mislead you(market their stock). they always leave their footprint on the ticker tape, and anyone who can read this can see opportunitys to be had. They will also see the any unforseen news stories that the specialists might use to, I know this as I have had positions and suddenly some news comes out and I have had to close out my position as it has spiked in my direction, so you must assume that there are poeple in the know and they are active to make money.
Hope you find this intresting and educational.
VSA Trader
Dr Evil...caught in the act.
Pressure to Perform Bond Strategy Haunts Citigroup
Six Traders Roiled Euro Markets In August, Sparking Inquiries,
Derailing Effort to Improve Image
THE WALL STREET JOURNAL
LONDON -- On July 16, a senior Citigroup Inc. executive in London told traders on the European government-bond desk they weren't making enough money for the firm and ordered them to come up with new trading strategies. About two weeks later, six bond traders pushed the button on a huge bond-trading strategy dubbed "Dr. Evil," taking its name from the "Austin Powers" spy-spoof movies, according to a report by a German financial regulator.
The frantic trading roiled the massive markets for European government bonds and futures contracts, and netted Citigroup an estimated 15 million euros, or about $20 million, in profit in just a few hours on Aug. 2. It also has embroiled Citigroup, the world's largest financial-services company, in months of controversy just as Chief Executive Charles O. Prince was seeking to clean up the bank's reputation after it was tarnished by the scandals at WorldCom Inc. and Enron Corp.
Citigroup in a statement yesterday reiterated its remorse over the trading.
Financial regulators in the United Kingdom, Italy and France are examining whether the trades violated their trading rules. German prosecutors are investigating the six traders for possible criminal violations after German securities regulators found indications of market manipulation. Citigroup and the traders could face administrative sanctions from Eurex, the derivatives exchange where the futures trades took place. In a statement yesterday, Citigroup said it is cooperating with regulators but believes the trading didn't violate any rules or regulations.
See WSJ for more details.
Porks
Pressure to Perform Bond Strategy Haunts Citigroup
Six Traders Roiled Euro Markets In August, Sparking Inquiries,
Derailing Effort to Improve Image
THE WALL STREET JOURNAL
LONDON -- On July 16, a senior Citigroup Inc. executive in London told traders on the European government-bond desk they weren't making enough money for the firm and ordered them to come up with new trading strategies. About two weeks later, six bond traders pushed the button on a huge bond-trading strategy dubbed "Dr. Evil," taking its name from the "Austin Powers" spy-spoof movies, according to a report by a German financial regulator.
The frantic trading roiled the massive markets for European government bonds and futures contracts, and netted Citigroup an estimated 15 million euros, or about $20 million, in profit in just a few hours on Aug. 2. It also has embroiled Citigroup, the world's largest financial-services company, in months of controversy just as Chief Executive Charles O. Prince was seeking to clean up the bank's reputation after it was tarnished by the scandals at WorldCom Inc. and Enron Corp.
Citigroup in a statement yesterday reiterated its remorse over the trading.
Financial regulators in the United Kingdom, Italy and France are examining whether the trades violated their trading rules. German prosecutors are investigating the six traders for possible criminal violations after German securities regulators found indications of market manipulation. Citigroup and the traders could face administrative sanctions from Eurex, the derivatives exchange where the futures trades took place. In a statement yesterday, Citigroup said it is cooperating with regulators but believes the trading didn't violate any rules or regulations.
See WSJ for more details.
Porks
Hi, great thread. I'd seen that Richard Ney article before--even though it's dated, it's very interesting.
I've always been curious about the market manipulators, especially during options expiry. If a NYSE stock has a consistent pattern of dropping the stock price on options Friday to precisely the strike price, who is it that is pushing the stock--the specialist, big trading companies, hedge funds, or do they all work together for mutual benefit? It doesn't matter what price the stock gets to during the week, by closing time Friday, it's the strike price!
Also, here's an article from the NY Times:
A New Inquiry Into Big Board Specialists
By JENNY ANDERSON
Published: February 7, 2005
The United States attorney's office in Manhattan is investigating individual traders on the floor of the New York Stock Exchange on suspicion of cheating customers through illegal trading practices already under scrutiny by the Securities and Exchange Commission and the exchange itself, according to someone who has been briefed on the investigation.
The criminal inquiry is an escalation of the investigation, begun by the Big Board in the summer of 2002, into the activities of stock exchange specialists - traders who manage the buying and selling of particular stocks and have an obligation to stabilize markets in the stocks they manage - from 1999 to 2003. There are two trading practices at issue in the investigations: executing proprietary orders before customer orders, and getting involved in a trade that should be carried out automatically with no intervention.
The S.E.C., after finding that the exchange was not being aggressive enough, then joined the investigation. In March 2004, both the S.E.C. and the stock exchange settled lawsuits with five major specialist firms in regard to the illegal trading. The five firms - LaBranche & Company; Bear Wagner Specialists, a unit of the Bear Stearns Companies; Spear, Leeds & Kellogg Specialists, part of Goldman Sachs; Fleet Specialist, now part of Bank of America; and Van der Moolen Specialists - paid more than $240 million in penalties and returned profits and agreed to a number of compliance improvements.
The firms neither admitted nor denied the accusations. The S.E.C. and exchange both said they would continue to investigate individual specialists. They are thought to be looking at 10 to 20 individuals. The United States attorney is looking at the same traders, the person briefed on the case said.
The escalation of a criminal investigation in addition to a continued civil inquiry is bad news for the Big Board, which had seemed to put the dark days of the previous inquiry behind it. John A. Thain, the exchange's chief executive, has been considering expanding the market into other businesses, including derivatives and bonds. Others at the exchange have been clamoring to move from a nonprofit entity to a for-profit organization.
The specialist investigations also add fuel to the argument, made often by critics of the Big Board, that computers are more effective at trading stocks than humans. The exchange, which has long contended that its system allows investors to get better prices with fewer big price swings, has been engaged in an intense effort to develop new technology and rules to allow more trading to be automated.
At the time of the settlement last March, the S.E.C. said in a statement describing the accusations, "The firms improperly profited from trading opportunities; disadvantaged customer orders, which either received inferior prices or went unexecuted altogether; and breached their duty to serve as agents to public customer orders."
That was not the end of the investigation. The commission is still expected to charge the Big Board with failing to adequately supervise its trading activities - one of its major responsibilities as a self-regulating organization. Many traders have been dismissed from the floor since the inquiry began almost three years ago, and one has been banned for not cooperating in the investigation.
In December, Michael F. Stern, 54, a former trader with Van der Moolen Specialists USA, was barred from the securities industry for failing to testify before an exchange panel concerning possible violations of federal securities law. His lawyer, Steven S. Sparling of Kramer Levin Naftalis & Frankel, did not return calls for comment. It is unclear whether Mr. Stern is a subject of the United States attorney's investigation.
Spokesmen for the Big Board, the S.E.C. and the United States attorney's office declined to comment, as did representatives of four of the five specialist firms. (A representative from Van der Moolen did not return calls for comment).
The exchange, which has significantly beefed up its regulatory staff, instituted new technology in November 2003 to prevent specialists from trading ahead of customers unless they are able to provide justification. If a specialist tries to step in front of a customer, a flag appears on the trading screen and the specialist must enter an explanation that will later be reviewed by market surveillance.
In addition, the exchange has submitted a rule change to the S.E.C. requiring that a specialist who has completed a trade but not reported it to yield to a customer order coming in. A decision on the rule is pending.
http://www.nytimes.com/2005/02/07/business/07wall.html
I've always been curious about the market manipulators, especially during options expiry. If a NYSE stock has a consistent pattern of dropping the stock price on options Friday to precisely the strike price, who is it that is pushing the stock--the specialist, big trading companies, hedge funds, or do they all work together for mutual benefit? It doesn't matter what price the stock gets to during the week, by closing time Friday, it's the strike price!
Also, here's an article from the NY Times:
A New Inquiry Into Big Board Specialists
By JENNY ANDERSON
Published: February 7, 2005
The United States attorney's office in Manhattan is investigating individual traders on the floor of the New York Stock Exchange on suspicion of cheating customers through illegal trading practices already under scrutiny by the Securities and Exchange Commission and the exchange itself, according to someone who has been briefed on the investigation.
The criminal inquiry is an escalation of the investigation, begun by the Big Board in the summer of 2002, into the activities of stock exchange specialists - traders who manage the buying and selling of particular stocks and have an obligation to stabilize markets in the stocks they manage - from 1999 to 2003. There are two trading practices at issue in the investigations: executing proprietary orders before customer orders, and getting involved in a trade that should be carried out automatically with no intervention.
The S.E.C., after finding that the exchange was not being aggressive enough, then joined the investigation. In March 2004, both the S.E.C. and the stock exchange settled lawsuits with five major specialist firms in regard to the illegal trading. The five firms - LaBranche & Company; Bear Wagner Specialists, a unit of the Bear Stearns Companies; Spear, Leeds & Kellogg Specialists, part of Goldman Sachs; Fleet Specialist, now part of Bank of America; and Van der Moolen Specialists - paid more than $240 million in penalties and returned profits and agreed to a number of compliance improvements.
The firms neither admitted nor denied the accusations. The S.E.C. and exchange both said they would continue to investigate individual specialists. They are thought to be looking at 10 to 20 individuals. The United States attorney is looking at the same traders, the person briefed on the case said.
The escalation of a criminal investigation in addition to a continued civil inquiry is bad news for the Big Board, which had seemed to put the dark days of the previous inquiry behind it. John A. Thain, the exchange's chief executive, has been considering expanding the market into other businesses, including derivatives and bonds. Others at the exchange have been clamoring to move from a nonprofit entity to a for-profit organization.
The specialist investigations also add fuel to the argument, made often by critics of the Big Board, that computers are more effective at trading stocks than humans. The exchange, which has long contended that its system allows investors to get better prices with fewer big price swings, has been engaged in an intense effort to develop new technology and rules to allow more trading to be automated.
At the time of the settlement last March, the S.E.C. said in a statement describing the accusations, "The firms improperly profited from trading opportunities; disadvantaged customer orders, which either received inferior prices or went unexecuted altogether; and breached their duty to serve as agents to public customer orders."
That was not the end of the investigation. The commission is still expected to charge the Big Board with failing to adequately supervise its trading activities - one of its major responsibilities as a self-regulating organization. Many traders have been dismissed from the floor since the inquiry began almost three years ago, and one has been banned for not cooperating in the investigation.
In December, Michael F. Stern, 54, a former trader with Van der Moolen Specialists USA, was barred from the securities industry for failing to testify before an exchange panel concerning possible violations of federal securities law. His lawyer, Steven S. Sparling of Kramer Levin Naftalis & Frankel, did not return calls for comment. It is unclear whether Mr. Stern is a subject of the United States attorney's investigation.
Spokesmen for the Big Board, the S.E.C. and the United States attorney's office declined to comment, as did representatives of four of the five specialist firms. (A representative from Van der Moolen did not return calls for comment).
The exchange, which has significantly beefed up its regulatory staff, instituted new technology in November 2003 to prevent specialists from trading ahead of customers unless they are able to provide justification. If a specialist tries to step in front of a customer, a flag appears on the trading screen and the specialist must enter an explanation that will later be reviewed by market surveillance.
In addition, the exchange has submitted a rule change to the S.E.C. requiring that a specialist who has completed a trade but not reported it to yield to a customer order coming in. A decision on the rule is pending.
http://www.nytimes.com/2005/02/07/business/07wall.html
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