Friday, December 3

Stock Manipulation 101 / Why Down On Pre-Open Bids?

Idamoeron asks this question in the comments of my previous post:

"I don't follow--it appears the price went down over the 2 weeks. On days without the artificial bids, the price closed higher. As the very informative investor that you are, please help us understand better. Where is the manipulation & its intended impact?"

Here's what happens: an artificially high pre-open bid creates the appearance of additional buying interest. The technique especially makes sense when a special event is coming up to create an illusion of excited anticipation.

The hope of the manipulator is that investors seeing the increase pre-open will jump in and drive the stock up. This didn't happen here and I think that's most likely because of the recent negative publicity (StreetSweeper, AEHI Truth et al) which created selling pressure that counteracted the manipulation.

But that's not to say that there was no success. The right question to ask is where would the stock trade at if it weren't for the bid stuffing.

The thing is: once doubt develops a stock like AEHI can plunge very hard very quickly. A 50% drop on a single day is not unheard of. I'll discuss the reasons for that when we'll talk about intraday bid stuffing, ramping and matched orders.


  1. Thank you Mr. Lucid, I appreciate your response. I see it more as Investor Protection 101 rather than "Stock Manipulation 101". I'm assuming that not only does a "high pre-open bid create the appearance of additional buying interest" but that it also deters shorts following negativity. For example, I see that the negative publicity (StreetSweeper <10/4/10, AEHI Truth 6/14/09, et al <11/1/10) were all at work long before the 2 week period of 11/22 to 12/3 in which you examine. How is a so-called "artificially high pre-open bid", if it exists, any less fair than artificial negative publicity? I bet both sides believe equally strongly in the success of their position. How are the market makers artificially controlled to raise their pre-open bid & by whom? Seems that since they are called market makers they can set whatever bids they feel justified. Aren't those that spread negative publicity, in a way, market makers also, assuming they are short a stock? I believe traders like Jim Cramer were caught doing that. Bear Sterns, Lehman Bros., etc.? Maybe that's what "Stock Manipulation 101" is? Also, don't market makers take on more risk by raising pre-open bids? They wouldn't do that if they didn't think it was justifiable would they? What am I missing here? Where's the transparency?

  2. I can see how a current investor would see it like that. But the point is that new investors would pay too high a price. Which also the ultimate motivation for such manipulations since the operators want to sell their shares into inflated prices.

    Both technical manipulation and misrepresentations to investors are illegal and generally originate from the same operator. Pointing them out is not and benefits investors because they are less likely to become victims to inflated prices. That's independent of whether the publisher of the information is long or short or neutral.

    Even existing investors can benefit, at least if they are early and can still sell at inflated prices before the collapse.