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How The Big Players Manipulate The Stock Market 75 comments

I have always wondered if the big stock traders were able to manipulate the stock market and how they did it. Now I am confident that I know the answer to both of these questions, and you will too, after you read this article, and view the information in the links provided. I describe and illustrate the process they use to manipulate stocks in easy to understand terms. First, so you don't think I am totally out of my mind making these allegations, here is a link for you to view a YouTube video of CNBC's Jim Cramer titled, "

" and a link to Jim Cramer's Wikepedia where you can find the following excerpt-

"In March 2007, a December 2006 interview from's "Wall Street Confidential" webcast stirred controversy after it appeared on In the video, Cramer described activities used by hedge fund managers to manipulate stock prices - some of debatable legality and others illegal. He described how he could push stocks higher or lower with as little as $5 million in capital when he was running his hedge fund. Cramer said, "A lot of times when I was short at my hedge fund...When I was positioned short-meaning I needed it down-I would create a level of activity beforehand that could drive the futures." He also encouraged hedge funds to engage in this type of activity because it is "a very quick way to make money"."

"Cramer stated that everything he did was legal, but that illegal activity is common in the hedge fund industry as well. He also stated that some hedge fund managers spread false rumors to drive a stock down: "What's important when you are in that hedge-fund mode is to not do anything remotely truthful because the truth is so against your view, that it's important to create a new truth, to develop a fiction." Cramer described a variety of tactics that hedge fund managers use to affect a stock's price. Cramer said that one strategy to keep a stock price down is to spread false rumors to reporters he described as "the Pisanis of the world". The comment was a reference to CNBC correspondent Bob Pisani, who reports from the trading floor of the New York Stock Exchange. "You have to use these guys," said Cramer. He also discussed giving information to "the bozo reporter from The Wall Street Journal" to get an article published. Cramer said this practice, although illegal, is easy to do "because the SEC doesn't understand it." During the interview Cramer referred to himself as a "banking class hero.""

Even though I have traded in the stock market for many years, it wasn't until I recently starting trading stocks using TD Ameritrade's ThinkorSwim trading platform, where I can quickly analyze stock trading over various time periods (day(s), month(s), year(s)) as well as over short intervals (even as short as a minute), that I began to realize how shorts were manipulating the market. Since May 1st of this year when a short attack began against Herbalife (NYSE:HLF), I have been following all of the activity surrounding that company including all news stories as well as all daily trading activity.

Before I began researching the information for this article, I began to see (HLF) trading activity that didn't make sense to me. In fact, it really didn't make sense that two companies under different ownership and management but mainly just sharing the commonality of being MLM's, Herbalife's and Nu Skin's (NYSE:NUS) shares were both attacked at the same time. Here is a link to both company's charts- HLF chart and NUS Chart , where you can see how their share price has traded over the last few months. (SUGGESTION: Use 6 month time period as well as candlestick format for the charts)

Even though I believe there has been manipulation of Herbalife's (HLF) shares on a daily basis, I want to focus on the manipulation that occurred immediately after Herbalife reported Record 2nd Quarter 2012 which I discuss in greater detail in my article- "Herbalife Shorts Shorted More Shares To Stop Upward Share Price Momentum" In order to stop longs enthusiasm and the momentum created by a great 2nd quarter, shorts continued to added 585,409 shares of HLF shorted to their short positions over the period August 1, 2012 to August 15, 2012 to not only stop Herbalife's share price from rising but to also knock it back down by $1.85-

Settlement Date Short Interest Closing Share price
8/15/2012 13,007,577 $53.05
7/31/2012 12,422,168 $54.89

You might think an additional 585,409 shares shorted sounds like a small number of shares shorted since Herbalife has over 100 million shares outstanding. However, when you realize that there was only actually 11 trading days during that time period, and when you also understand that the shorts used computerized selling and buying of shares at opportune times to manipulate the share price, you should understand why they were able to control Herbalife's share price during that time period, to stop the upward share price momentum, and then to drive the share price slightly down.

How it works

This process can be used by hedge funds to either pump up a stock or to trash a stock but since I am using Herbalife as an example, we will discuss that situation. First information is widely distributed to make investors wonder about the company and to put fear into those longs that hold the stock. Next, high volume shorting takes place to drive the...