Market Manipulation is a deliberate attempt to interfere with the operation of the market and create artificial, false or misleading prices. There are different ways to manipulate the stock prices. In Indian Markets, many stocks generally get manipulated. Sometimes these are noticeable, most of the time they’re not. There are many case studies we can consider, for example – A well-known company’s share prices jumped in early April 2018 after the board approved share buyback of Rs. 424 Crores. Before and after the announcement, some International funds reduced their holdings in the stock by 50%, offloading more than two-thirds of their original stake in the company. The stock witnessed panic selling. The stock has been highly volatile for some time now.
Stages of Stock Price Manipulation
Now think about this – Why would an International fund management firm sell its stakes even after the Buyback announcement? The shares were trading at 200; company announced the buyback at 325. Isn’t it a rational behaviour to sell the stakes after buyback at better price for a profit? Then why did the International fund management firm kept selling at 200?
Is this a twisted version of Classic Lure and squeeze Stock market Manipulation Trick?
Lure and Squeeze Manipulation trick: This works with a company that is very distressed on paper, with impossibly high debt and consistently high annual losses. The stock price gradually falls as people new to the stock short it on the basis of the poor outlook for the company, until the number of shorted shares greatly exceeds the total number of shares that are not held by those aware of the lure and squeeze scheme (call them “people in the know”).
In the meantime, “people in the know” increasingly purchase the stock as it drops to lower and lower prices. When the short interest has reached a maximum, the company announces an arrangement such as buybacks, dividends or Bonus etc. which pushes the stock prices upside to help the company, those who have short positions will be squeezed as the price of the stock sky-rockets.
In the above example, it looks like the some large sharks are very clever enough to combine two different Stock price Manipulation tactics.
1) Lure and squeeze (which we have seen) 2) Wash Trade
What is a wash Trade?
Selling and repurchasing the same stock for the purpose of generating activity and increasing the price. Yeah that’s right – First you influence other small uninformed traders to sell and push the prices down, then you Buyback more quantity of shares at better price.
All normal traders could do is just see and wonder what is taking place! Whereas informed traders will understand the Market behavior and utilize the opportunity. With Proper knowledge and Understanding of Market dynamics, we can Identify these type of Market activity and use them to our advantage. We will cover such type of Practical knowledge in our Premium training program.
