Go to Jeff Salisbury LWGate Home Page.From: "Tom Worley" <stkguru@netside.net>
Subject: Re: [CANSLIM] Microcap Question
Date: Wed, 13 Mar 2002 08:47:18 -0500
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You would have to have at least Level Two service, where you can see the =
individual bids and asks by each market maker.
And yes, it is possible to have a single MM, altho a Naz listed stock is =
far more likely to have several.
When you are "trading" against a MM, it is important to remember that =
you are the competition. He is trading against his own acct, and wants =
to sell above his inventory cost, or buy back below that cost. He is =
there to make money, just like us.
Tom Worley
stkguru@netside.net
AIM: TexWorley
- ----- Original Message -----=20
From: Rob Miller=20
To: canslim@lists.xmission.com=20
Sent: Wednesday, March 13, 2002 8:30 AM
Subject: Re: [CANSLIM] Microcap Question
Thanks Tom. On a thinly traded Nasdaq microcap stock, is it possible =
that there is only one market maker? If so, I can see how the bid might =
be manipulated. Is there any way to find this out?
Rob
- ----- Original Message -----=20
From: Tom Worley=20
To: canslim@lists.xmission.com=20
Sent: Tuesday, March 12, 2002 9:33 PM
Subject: Re: [CANSLIM] Microcap Question
OK, I am home and will jump in here.I will try not to get too =
technical or windy.
First, keep in mind that NASDAQ and NYSE/AMEX work differently. The =
first is a population of independent market makers, each with their own =
bid and ask price. The latter is generally represented by a floor =
trader, who represents the "book" (all bids and offers) on a particular =
security.
In both cases, what you "see" on quotes / live quotes is the best bid =
(highest price) and best offer (lowest price). With a stock on =
NYSE/AMEX, typically the same floor trader is responsible for both =
prices. With Naz, the bid may be one firm, the ask another.=20
When you enter a Naz order, the firm holding your order can either =
execute it themselves, or farm it out to another firm. But either way, =
you should always get the best bid (highest) or ask (lowest). Exceptions =
would occur when you have special conditions on your order, such as AON =
(All Or None), or a limit price. So a buy order of 6K at a price of .99 =
might not execute if the best offer was only good for a few hundred =
shares, and the next best offer was at 1.01. On the other hand, the same =
order to buy 6K shares at "market" might well have executed at 99 cents, =
because a market order will take precedence over a limit order. At =
worse, it might have executed a penny or so higher in most cases.
Orders up to 1,000 shares can be automatically executed against =
another firm using SOES (Small Order Execution System). These can happen =
at lightening speed, even faster than that market maker is able to =
adjust their quote. I have seen a MM offering 5K shares get hit by SOES =
so fast that they lose 7 or 8K shares before they can raise their offer. =
Often this may force them then to go in and bid higher for stock to =
cover the difference. I have also often seen a MM that is not paying =
attention, and has a bid or offer out there for 100 or several hundred =
shares, and not realize that they have become the best price. So their =
quote appears as the "best", but it's not real because it's so small in =
size.
A MM can drop his bid to try and force execution of some stop loss =
orders, but he only knows about those stop loss orders on his own books, =
he cannot see all Naz orders. Nor can he cause other MM to drop their =
bid, and it still takes an execution, not a bid, to trigger a stop loss =
order. Even if he gets sell or stop loss orders, he must still honor the =
best market bid price (or give it to another MM) until that falls to his =
new level.
I haven't sat on a Trading Desk for nearly four years, so some things =
may have changed, but I think a Broker Dealer still has 90 seconds to =
report each execution to NASDAQ, and cause the resulting print. So in =
that time interval, on a volatile stock, you could see the display of =
the best bid and ask change several times, and appear to be out of whack =
with the eventual print of a prior trade.
Tom Worley
stkguru@netside.net
AIM: TexWorley
----- Original Message -----=20
From: Rob Miller=20
To: canslim@lists.xmission.com=20
Sent: Tuesday, March 12, 2002 1:24 PM
Subject: Re: [CANSLIM] Microcap Question
Ian,
Thanks for answering my question. I wasn't aware that a market maker =
could ignore the highest bid like that. If I understand you right, a =
market maker can drop the bid to a point where a number of stop orders =
will be executed, allowing him to accumulate shares, despite the =
prevailing bid remaining at the higher price. So if I had the =
prevailing bid, he can force sellers to take a lower price even though I =
was willing to pay a higher price. That sounds unethical as well as =
illegal.
Rob =20
----- Original Message -----=20
From: Ian=20
To: canslim@lists.xmission.com=20
Sent: Tuesday, March 12, 2002 1:09 PM
Subject: Re: [CANSLIM] Microcap Question
Often times, you will see that activity in microcaps as the market =
maker takes out stops set at $6.99 and buys some shares. You will =
frequently see it right before a volume surge - they see some volume =
bids coming in, and quickly drop the price in order to accumulate some =
inventory by taking out stop-loss orders.
Last week, I was trying to buy shares in a penny stock (my first in =
years, but all the CANSLIM characteristics save the low price). The =
bid-ask was 0.96 x 0.99. I but in an offer to buy another 6000 shares at =
0.99. I was watching a streamer and noticed that 40000 shares traded at =
or below 0.99, so I assumed that my order was filled. At the end of the =
day the price was 1.10, so I looked at my account and saw that I was NOT =
filled! The moral is that you are subject to some nasty (unethical?) =
trading practices as liquidity and price get low. The stock is at 1.40 =
today, 4 trading days later :(
Ian
----- Original Message -----=20
From: Rob Miller=20
To: canslim@lists.xmission.com=20
Sent: Tuesday, March 12, 2002 7:20 AM
Subject: [CANSLIM] Microcap Question
Tom, I'm hoping you can answer this question for me since =
microcaps are your main interest. I've not dealt with them much in the =
past. I've been following a few microcaps (<$80 million market cap) and =
I'm confused about the movements in the bid/ask prices. Assume the =
spread is 7 X 7.15 with most trades, small lots, split evenly between =
those hitting the bid and those taking the ask. However, the action is =
slow. Then, the bid suddenly drops to 6.90, 6.85, 6.80, 6.75. Several =
trades go off at 6.75 over just a few seconds, then the bid jumps back =
up to 7.00, at which point the trading becomes slow again. The ask =
never changes. In some cases, trades go off below the bid price. =20
I can understand when someone withdraws their bid causing the bid =
to drop, but it seems strange that several trades go off at what appears =
to be far below the prevailing market price. No trades, bid drops for a =
few seconds, a few quick trades, then bid goes back up. What causes =
this? It seems to scripted to be accidental. =20
Thanks,
Rob=20
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<DIV><FONT face=3DArial>You would have to have at least Level Two =
service, where=20
you can see the individual bids and asks by each market =
maker.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>And yes, it is possible to have a single MM, =
altho a Naz=20
listed stock is far more likely to have several.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>When you are "trading" against a MM, it is =
important to=20
remember that you are the competition. He is trading against his own =
acct, and=20
wants to sell above his inventory cost, or buy back below that cost. He =
is there=20
to make money, just like us.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV>Tom Worley<BR><A=20
href=3D"mailto:stkguru@netside.net">stkguru@netside.net</A><BR>AIM:=20
TexWorley</DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Drmiller2@carolina.rr.com =
href=3D"mailto:rmiller2@carolina.rr.com">Rob=20
Miller</A> </DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV><B>Sent:</B> Wednesday, March 13, 2002 8:30 AM</DIV>
<DIV><B>Subject:</B> Re: [CANSLIM] Microcap Question</DIV></DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>Thanks Tom. On a thinly traded =
Nasdaq=20
microcap stock, is it possible that there is only one market =
maker? =20
If so, I can see how the bid might be manipulated. Is there any =
way to=20
find this out?</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Rob</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV>----- Original Message ----- </DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dstkguru@netside.net href=3D"mailto:stkguru@netside.net">Tom =
Worley</A>=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Tuesday, March 12, 2002 =
9:33=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] Microcap =
Question</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial>OK, I am home and will jump in here.I will try =
not to=20
get too technical or windy.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>First, keep in mind that NASDAQ and NYSE/AMEX =
work=20
differently. The first is a population of independent market makers, =
each with=20
their own bid and ask price. The latter is generally represented by a =
floor=20
trader, who represents the "book" (all bids and offers) on a =
particular=20
security.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>In both cases, what you "see" on quotes / live =
quotes is=20
the best bid (highest price) and best offer (lowest price). With a =
stock on=20
NYSE/AMEX, typically the same floor trader is responsible for both =
prices.=20
With Naz, the bid may be one firm, the ask another. </FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>When you enter a Naz order, the firm holding =
your order=20
can either execute it themselves, or farm it out to another firm. But =
either=20
way, you should always get the best bid (highest) or ask =
(lowest).=20
Exceptions would occur when you have special conditions on your order, =
such as=20
AON (All Or None), or a limit price. So a buy order of 6K at a price =
of .99=20
might not execute if the best offer was only good for a few hundred =
shares,=20
and the next best offer was at 1.01. On the other hand, the same order =
to buy=20
6K shares at "market" might well have executed at 99 cents, because a =
market=20
order will take precedence over a limit order. At worse, it might have =
executed a penny or so higher in most cases.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>Orders up to 1,000 shares can be automatically =
executed=20
against another firm using SOES (Small Order Execution System). These =
can=20
happen at lightening speed, even faster than that market maker is able =
to=20
adjust their quote. I have seen a MM offering 5K shares get hit by =
SOES so=20
fast that they lose 7 or 8K shares before they can raise their offer. =
Often=20
this may force them then to go in and bid higher for stock to =
cover the=20
difference. I have also often seen a MM that is not paying attention, =
and has=20
a bid or offer out there for 100 or several hundred shares, and not =
realize=20
that they have become the best price. So their quote appears as the =
"best",=20
but it's not real because it's so small in size.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>A MM can drop his bid to try and force =
execution of some=20
stop loss orders, but he only knows about those stop loss orders on =
his own=20
books, he cannot see all Naz orders. Nor can he cause other MM to drop =
their=20
bid, and it still takes an execution, not a bid, to trigger a stop =
loss order.=20
Even if he gets sell or stop loss orders, he must still honor the best =
market=20
bid price (or give it to another MM) until that falls to his new=20
level.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV><FONT face=3DArial>I haven't sat on a Trading Desk for nearly =
four years,=20
so some things may have changed, but I think a Broker Dealer still has =
90=20
seconds to report each execution to NASDAQ, and cause the resulting =
print. So=20
in that time interval, on a volatile stock, you could see the display =
of the=20
best bid and ask change several times, and appear to be out of whack =
with the=20
eventual print of a prior trade.</FONT></DIV>
<DIV><FONT face=3DArial></FONT> </DIV>
<DIV>Tom Worley<BR><A=20
href=3D"mailto:stkguru@netside.net">stkguru@netside.net</A><BR>AIM:=20
TexWorley</DIV>
<DIV style=3D"FONT: 10pt arial">----- Original Message -----=20
<DIV style=3D"BACKGROUND: #e4e4e4; font-color: black"><B>From:</B> <A=20
title=3Drmiller2@carolina.rr.com =
href=3D"mailto:rmiller2@carolina.rr.com">Rob=20
Miller</A> </DIV>
<DIV><B>To:</B> <A title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
</DIV>
<DIV><B>Sent:</B> Tuesday, March 12, 2002 1:24 PM</DIV>
<DIV><B>Subject:</B> Re: [CANSLIM] Microcap Question</DIV></DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>Ian,</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Thanks for answering my =
question. I wasn't=20
aware that a market maker could ignore the highest bid like =
that. If I=20
understand you right, a market maker can drop the bid to a point where =
a=20
number of stop orders will be executed, allowing him to accumulate =
shares,=20
despite the prevailing bid remaining at the higher price. =
So if=20
I had the prevailing bid, he can force sellers to take a lower =
price even=20
though I was willing to pay a higher price. That sounds =
unethical as=20
well as illegal.</FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Rob =
</FONT></DIV>
<DIV> </DIV>
<DIV>----- Original Message ----- </DIV>
<BLOCKQUOTE dir=3Dltr=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Dianstm@shaw.ca href=3D"mailto:ianstm@shaw.ca">Ian</A> =
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A =
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Tuesday, March 12, 2002 =
1:09=20
PM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> Re: [CANSLIM] =
Microcap=20
Question</DIV>
<DIV><BR></DIV>
<DIV><FONT size=3D2>Often times, you will see that activity in =
microcaps as=20
the market maker takes out stops set at $6.99 and buys some shares. =
You will=20
frequently see it right before a volume surge - they see some volume =
bids=20
coming in, and quickly drop the price in order to accumulate some =
inventory=20
by taking out stop-loss orders.</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=3D2>Last week, I was trying to buy shares in a penny =
stock (my=20
first in years, but all the CANSLIM characteristics save the low =
price). The=20
bid-ask was 0.96 x 0.99. I but in an offer to buy another 6000 =
shares at=20
0.99. I was watching a streamer and noticed that 40000 shares traded =
at or=20
below 0.99, so I assumed that my order was filled. At the end of the =
day the=20
price was 1.10, so I looked at my account and saw that I was NOT =
filled! The=20
moral is that you are subject to some nasty (unethical?) trading =
practices=20
as liquidity and price get low. The stock is at 1.40 today, 4 =
trading days=20
later :(</FONT></DIV>
<DIV> </DIV>
<DIV><FONT size=3D2>Ian</FONT></DIV>
<BLOCKQUOTE=20
style=3D"PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; =
BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
<DIV style=3D"FONT: 10pt arial">----- Original Message ----- =
</DIV>
<DIV=20
style=3D"BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: =
black"><B>From:</B>=20
<A title=3Drmiller2@carolina.rr.com=20
href=3D"mailto:rmiller2@carolina.rr.com">Rob Miller</A> </DIV>
<DIV style=3D"FONT: 10pt arial"><B>To:</B> <A=20
title=3Dcanslim@lists.xmission.com=20
=
href=3D"mailto:canslim@lists.xmission.com">canslim@lists.xmission.com</A>=
=20
</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Sent:</B> Tuesday, March 12, =
2002 7:20=20
AM</DIV>
<DIV style=3D"FONT: 10pt arial"><B>Subject:</B> [CANSLIM] Microcap =
Question</DIV>
<DIV><BR></DIV>
<DIV><FONT face=3DArial size=3D2>Tom, I'm hoping you can answer =
this question=20
for me since microcaps are your main interest. I've not =
dealt with=20
them much in the past. I've been following a few microcaps =
(<$80=20
million market cap) and I'm confused about the movements in the =
bid/ask=20
prices. Assume the spread is 7 X 7.15 with most trades, =
small=20
lots, split evenly between those hitting the bid and those taking =
the=20
ask. However, the action is slow. Then, the bid =
suddenly drops=20
to 6.90, 6.85, 6.80, 6.75. Several trades go off at 6.75 =
over just a=20
few seconds, then the bid jumps back up to 7.00, at which point =
the=20
trading becomes slow again. The ask never changes. In =
some=20
cases, trades go off below the bid price. </FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>I can understand when someone =
withdraws their=20
bid causing the bid to drop, but it seems strange that several =
trades go=20
off at what appears to be far below the prevailing market=20
price. No trades, bid drops for a few seconds, a =
few quick=20
trades, then bid goes back up. What causes this? =
It seems=20
to scripted to be accidental. </FONT></DIV>
<DIV><FONT face=3DArial size=3D2></FONT> </DIV>
<DIV><FONT face=3DArial size=3D2>Thanks,</FONT></DIV>
<DIV><FONT face=3DArial=20
size=3D2>Rob</FONT> </DIV></BLOCKQUOTE></BLOCKQUOTE></BLOCKQUOTE></B=
ODY></HTML>
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