As long as there have been markets there has been market manipulation. In today’s video I will discuss one of the more common forms of manipulation and how traders can use it to their advantage.
View Video Transcriptas long as there have been markets there
has been market manipulation in today’s
video I will discuss one of the more
common forms of manipulation and how
traders can use it to their advantage
[Music]
hi I’m Steven Spencer I’m a partner at
SMB Capital proprietary trading firm in
New York City where we trade stocks
options and futures broadly speaking
there are two ways people attempt to
manipulate stock prices one is
structural and by and large is allowed
or at least rarely have ever punished if
a trader has a large position in a stock
they would like to sell they may attempt
to show strong buy interest in the stock
by showing large buy orders in the
market other market participants see
those buy orders and some will buy stock
causing it to rise and the person with
the large position is able to sell at
higher prices when I was younger in my
early years of trading and the sort of
thing bothered me but at a certain point
I decided it made more sense to identify
this type of behavior and use it to my
advantage so I would closely watch what
we call the tape for manipulation and
trade the stock accordingly the second
way to push a stock around is by
creating stories about a company hedge
funds have been doing this for decades
they’re able to plant stories with news
outlets and in the current age they can
use social media platforms to very
quickly widely disseminate their stories
let’s take a look at a recent example in
Tesla TSLA and let’s discuss how to
identify whether a story is substantive
or not and whether the attempt at
manipulation created a good short-term
trading opportunity earlier this morning
I woke up and was bombarded about Tesla
being investigated by the government I
checked the stock price and it was down
about $7 from the days prior Glu’s then
I did what most people don’t do I read
the article with a headline that said it
was under investigation and lo and
behold it took a few seconds for me to
realize the headline was inaccurate the
NHTSA had received an email complaint
alleging that its cars were defective
and as you can see from these headlines
some of them are accurate some are the
marina accurate I’ve kind of circled the
ones that are accurate where they say
it’s alleged there’s lage that there is
an acceleration problem and a few of the
more legitimate companies like The Wall
Street Journal there they’re accurate
but men
the other headlines are inaccurate
basically saying there’s an
investigation and that’s what’s causing
the stock the gap lower the week our
safety works in the US is that if you
believe there is a problem with the
vehicle you can report it to the agency
in charge of vehicle safety that agency
must tell the general public it has
received a complaint and in the case of
Tesla this has happened repeatedly the
past few years Tesla is the most heavily
shorted stock in the United States the
value of Tesla’s short position is well
over 10 billion dollars when you are
sure to stock you lose money when the
price rises in the case of Tesla in the
first half of January it traded from
just above $400 per share to 550 the
quick math is Schwartz had roughly four
billion dollars in losses in the first
two weeks of January that is a lot of
pain on January 13th an email is sent to
the NHTSA stating that all of Tesla’s
cars were defective the person who sent
the email knows the system they
understand the NHTSA will release a
statement and then there will be a
flurry of headlines and they pray like
hell those headlines will encourage
people to sell the stock and their
losses will become less Tesla was our
number one in play stock in our morning
game plan the news was a complaint had
been emailed to the NHTSA rather than
being annoyed or angry about this
attempt at stock manipulation I followed
my normal prep and identified areas
where I would like to buy the stock if
it dropped so here are the morning game
plan notes
it has our multiple support areas has
multiple resistance areas we’re looking
for it to trade in that range if you
want to understand better how I develop
the game plan how I develop the game
plan notes and the top and play stocks
please check out the trading workshop
com or click on the link above that
takes you to our to our free workshop I
spend 30 minutes explaining in detail
how to identify the most in play stocks
with the lowest risk highest reward and
there are three of the top setups that
we trade on our prop desk in New York
City as well and it’s well worth your
your time and we’ve gotten a lot of
positive feedback on it if there had
been no headline in the morning my game
plan would have been slightly different
I would have still
at Tesla to trade an arranged but that
range would have been higher based on
yesterday’s large afternoon balance the
adjustment to my game plan was simply
lowering the prices where I would look
to buy the stock so coming into today
you know we need to understand the
context of what Tesla stock has done
recently I already let you know that it
run up from just above four hundred
dollars a share to 550 in the first two
weeks of the month but if we zoom out
even a little bit more we know that
going all the way back to October they
were they released a really good
earnings report in the stock had gapped
above 300 so the stock now from October
to mid-january has traded from 300 all
the way to above 500 dollars a share you
could argue that this is perhaps the
strongest stock in the market right now
the buyers are in control the psychology
is positive so that’s kind of a backdrop
that we’re looking at when this news
comes out this morning with the
complaint being filed with the NHTSA so
I’m I’m using that as part of my as I’m
developing my game plan there’s a
positive psychology coming in I know
that prior to today the stock had popped
out in front of 5:50 and it pulled back
yesterday down to below $500 a share
before having that strong afternoon
imbalance to 5:15
so as the stocks been trending higher
for the last few months it has not had
more than two days in a row of being
negative and so when it’s bounced has a
big bounce yesterday from 493 is open to
515 in the afternoon my thought process
is basically perhaps today can have a
day of rest perhaps there will be a
range and so the news story or the
attempted news story by those who were
short the stock all that does is I still
think it can be a day of rest today but
the the price levels will be shifted
downwards because in the free market its
trading lower you might get a little bit
of selling pressure right on the open
and so I’m going to adjust adjust the
prices that we look at trading in the
market opens in Tesla bounces to 515
that’s our three on our sheet so now I
know many traders were thinking the same
thing as me they’re using the headlines
to buy based on the opening strength
it was my view there are two possible
trades in the afternoon buying a pull
back to the morning so
port or the pre-market sort support
weird had a large bounce from already or
get long if Tesla trades above the
morning high of five fifteen another
wrinkle to today’s market activity that
it is monthly options exploration and if
a stock has a large open interest for a
strike price that can act as a magnet as
well so as we look at the open interest
sheet what we can see is there’s a lot
of people who are in the five ten calls
and a lot of people in the five ten puts
other than five hundred strike price
it’s the largest open interest we see on
all these different strike prices and so
what happens is as the stock Tesla
trades above five ten people who own the
calls they’re actually encouraged to
sell stock because they’re in effect
locking in profits on the calls they’re
along the five ten calls or when it
trades below five ten people who own the
five ten parts are encouraged to get
long because that’s how they can profit
from their the puts that they own that
gives them the ability to sell five ten
sell at the five ten strike price at the
close and so you have this dynamic where
rates above five ten it gets pulled back
when it get trades below five ten ten
potentially gets pulled pulled up and so
that combined with the fact that we have
the 508 support from the open and then
the 504 505 support from the pre-market
I’m going to look if it’s they start to
bounce from those levels for it to get
what’s called pinned at five ten into
the clothes and so that’s another kind
of a wrinkle and another thing that
we’re gonna use as we’re looking to
trade the stock and so in the morning it
got to our r3 resistance level from our
game plan notes it failed there at 5:15
and as it’s starting to fail there and
move down a reasonable target is the
five ten price level based on the large
open interest in the options and in the
late morning in there I guess the middle
of the day when it started to hold below
five ten you could look for it to come
into support and then it started to
bounce to pin back up at five ten as
well
and so and I think as I’m doing this
video I think it’s already had a you
know it beds bounced from 505 for at 504
back up to 509 510 and as we come into
the close and this is we’re filming this
before the close we’ll watch to see if
it kind of pins right at that that
strike price and so
to beat the meme lesson in the main
takeaway from today is we coming into
the day we had an idea how we were gonna
create this stock then these story
breaks the press is going to treat it as
it normally does as a big headline a lot
of the headlines are gonna be incorrect
left less experienced traders will start
to sell it in the free market maybe even
sell it a little bit right on the open
but we’ll look for more experienced
traders to buy it because they saw the
large balance yesterday they saw the
strong afternoon close and the
opportunity to buy that down $10 in the
morning based on the fact that it’s
already started a balance yesterday
people are going to jump in and use that
opportunity and then once we have our
morning high and our morning low we’re
then just gonna treat it as a range
trade and go from there we’re not gonna
get angry we’re not going to get upset
we’re gonna use this attempt at
manipulation to give us basically good
risk for trades so one of the great
things about the trading community and
the people who watch the videos as we
get amazing feedback on these videos we
get a lot of developing traders and
experienced traders talking about how
they would trade this situation how they
will use news to their advantage if you
have any ideas of how you would trade a
similar situation or how you’re using a
news catalyst or fake news catalyst
please comment below the video share
your ideas share your thoughts and if
you have questions by all means ask us
questions about this particular setup or
similar setups we’ll answer all your
questions and also a lot of the people
watching the video or experienced
traders they’ll give you feedback as
well so share your thoughts share your
questions we can all learn more that way
