As all eyes focused on GameStop
Below are fifteen examples that exhibited the classic manipulation pattern. First, let’s look at the strategic steps that create the pattern.
The five steps of manipulation
Manipulator(s) prefer a neglected stock, often lower-priced with lackluster trading volume and an uninteresting chart pattern. Then, they act.
Note: With today’s rapid communications and trading capabilities, the following steps can occur very quickly, as the charts show.
- They quietly accumulate a position to avoid notice
- When the time is right, they step up their buying, causing a strong price rise to trigger interest and entice new buyers, thereby pushing the stock higher (this is the “pump” phase)
- The now-obvious action produces website “analyses,” helping spread the word (manipulators can support this activity)
- Social media chat boards excitedly pick up the action and spread the word further (manipulators can support this action)
- If all goes according to plan, the manipulator(s) sell into a strong buying upsurge accompanied by optimistic articles and conversations (this is the “dump” phase)
With the manipulator(s) selling and departing, the stock sinks. The remaining shareholders now are conflicted about perhaps missing the top but not wanting to miss another dramatic run-up. Then, as the stock sags further, reality sets in and the hangers-on sell out. (This unhappy period could be what’s in store next week.)
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Fifteen stocks showing manipulation patterns last week
These are stocks listed on the NYSE American exchange, formerly the American Stock Exchange that used to be #2 behind the NYSE. Its listings have always included a multitude of lesser known companies and lower priced stocks – the perfect characteristics for tantalizing novice and naïve investors.
Charts cover January 25-29 week performance in five-minute increments
Bottom line: Education is a positive payoff
When the dust finally clears, the stock chart shows a dramatic “blip” that transferred wealth to the enticers from the enticed, but failed to alter the stock’s longer-term trend
However, there is an important gain the enticed should take away: The experience of being drawn into an investment by dreams of easy money. This feeling is the reliably recurrent driver of investment bubbles.
Especially important in investing is to embrace the truism, “Fool me once, shame on you. Fool me twice, shame on me.” In other words, say “Thank you!” when a Wall Street action mistreats you, allowing you to improve your strategy for investing success.
Such hard-knock lessons are typical in the valuable investing education curriculum. The important takeaways are both the lesson, itself, and the resolve not to repeat it.