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Gene Andrews, RIA & RCDD - Founded Alliance Communications Engineering, Inc in 1986 and grew the company to the status of a major player in Southern California as a communications infrastructure contractor with over 150 employees. In 2010 Mr. Andrews became a California Registered Investment... More
My company:
SUB~ROSA CAPITAL, L.L.C.
My book:
The Stock Market Insiders Manifesto
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  • Eli Lilly (LLY) Looks Like A Short

    Observe, Orientate, Decide and then Act

    If one is to know truly one must see truly. The power and importance of observation cannot be overstated. The stock market is not an environment which allows the application of the scientific method. We cannot subject a control group to a certain stimuli and draw conclusions from the findings. It is more analogous to astronomy where orbitals and complex vector space is quantified by understanding position and momentum and attributing values to each.

    An inherent problem with observation is that we tend to perceive what we expect to perceive and our perceptions resist change even in the face of new and better data. In addition, conclusions drawn from a small body of consistent data engenders more confidence than those drawn from a larger body of less consistent data. It is a critical junction where judgment becomes more important than knowledge. Once you evaluate your observations you must orientate your exposure to the long and/or short side of the market and then decisively act.

    Based on the foregoing, these are my views and observations:

    The Trade - I suspect that (NYSE:LLY) is a short at $41.50. I would only establish ¼ of the position at $41.50 and the remaining ¾ at $44.00 with a stop out at $46.25. I would never post my stop loss. It is too easy for the Designated Market Maker to cash investors out by raising the price above the stop out and move the price right back down again. Remember the "Flash Crash"? This is a short term trade and nothing more. I would be looking to cover at $38.00. This trade is based on the facts that we know at the present time.

    I believe Insiders have been distributing (LLY) and selling short. (LLY) is in the process of forming a double top. In addition, it is currently at the higher levels of a trading range and this is occurring to the accompaniment of an increase in big block activity and heavy aggregate volume (300% greater than the 3 month average). When you witness this type of activity you can be fairly certain (but not positive) that insiders are liquidating positions and selling short.

    I believe that the Designated Marker Maker in this issue has depleted his inventory and sold short. He will need to drop the price in order to cover his short positions, replenish his inventory and accumulate from the selling which ensues.

    (click to enlarge)

    Although the blocks below are controlling the pattern they are not large enough to expect a long term trend reversal. They are more indicative of a reversal in a trading range. In this case a sideways channel pattern. They also have occurred at clearly obvious support/resistance levels which make them all the more significant.

    Blocks which evidence themselves at the reversal of a long term trend in this issue, should be about 20,000,000 shares or greater or a series of blocks aggregating a position of that magnitude. A pullback to $38.00 to $39.00 is most likely. I might just split the difference for the cover.

    That's it for now ... have a nice day.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in LLY over the next 72 hours.

    Tags: LLY
    May 10 10:36 AM | Link | 2 Comments
  • Market Manipulation Or Mind Manipulation

    "I'm going to tell you all kinds of lies to get you to believe me; and that's the truth, the whole truth and nothing but the truth"…

    Market manipulation is a byproduct of mind manipulation. It is ludicrous to believe that anyone who would manipulate the markets would not first engage in mind manipulation. This is especially true when doing so enhances the chances of establishing and maintaining positive control to bring about certain behaviors. It is the first priority in any confidence scheme or deception operation. It is Tradecraft at the highest levels. Tradecraft is a general term that denotes a skill acquired through experience in a clandestine trade. The term is also used within the military and intelligence communities as a collective word for the techniques used in modern espionage. It is also the basic underlying premise of my thesis which is: the market should be viewed from the perspective of an intelligence analyst evaluating covert operations.

    The investor who believes he controls his own behavior in the market can be very much mistaken. The triggering mechanism for almost everything he does and does not do in the markets is substantially influenced by the exchange. According to Sun Tzu - Art of War "It is as important to know what not to do and when not to do it, as it is to know what to do and when to do it."

    When Pavlov rang his bell the dogs salivated because they had been conditioned to associate the bell with food. Pavlovian conditioning has since been recognized as the basic force underlying human behavior. Highly competent authorities in the field of human behavior are of the opinion (which I share) that an individual's behavior can be successfully controlled and manipulated and for the most part the individual behaves mechanically. The media, advertisers, governments and financial institutions are aware of this and they exploit it as much as possible. In addition, they know that if a lie is repeated enough it becomes more credible albeit no more truthful.

    The entire industry attempts to control investor behavior in the market. Surprisingly it is not that difficult to do inasmuch as investors are reactive beings. Presented with a stimulus such as rising prices or falling prices and he will surly react. Moreover, his reaction will usually be the same, time and time again. In addition, the same stimulus will usually produce the same reaction. This is why the stock exchange is able to predict with certainty, what investors will do when they raise and lower prices. Without exception they will buy on rising prices and sell in a decline.

    Every newspaper and media outlet bombards the investing public with the fictions of the exchange which eventually form the basis of the public's thinking about the market. Ultimately, it is the control over stock prices which gives the exchange its greatest control over investor behavior.

    There does not exist in the entire world a more important aspect to successful investing than the investor's mindset. The Ancient Greek Temple Delta had the credo KNOW THYSELF engraved on the archway leading to the oracle chamber. It is a concept as relevant today as it was then. For it is the inquiring, rather than the creative mind, the comprehensive rather than the specialized approach and the reactive rather than the proactive mind that prevails.

    Never assume that by being proactive you can take the bull by the horns without being gored. Be reactive rather than proactive. Unless you trade on the floor of the exchange you need to play defensively. To do otherwise is to overstate your own relevance to the market. Just to be clear, when I refer to "playing defensively" I am not referring to buying a defensive stock, such as Proctor & Gamble (NYSE:PG) in a slowing economic climate. I am suggesting that investors wait for Insiders to make the first move and jump on their side of the trade.

    Nevertheless, it is amazing how many successful business types and successful professionals are abject failures in market investing. They cannot fathom someone else being in control or the extent of that control. Perhaps it is because the primary components of their character which lead to their success in the first place are out of phase with market investing. They believe that being proactive has always worked so why not now.

    Metaphorically speaking in terms of boxing you need to "bob and weave", "stick and move" because going toe to toe with the exchange will result in the average investor being KNOCKED OUT COLD. The Designated Market Maker (formerly known as Specialist) is the undisputed undefeated heavyweight champion of the exchange and he won't ever be defeated.

    Unfortunately, truth in and of itself is rarely enough to cause people to act. Hence the step is always long from cognition to volition and from knowledge to ability. It is emotion that moves people and markets. Successful investors maintain equanimity and keep their emotions in check.

    That's it for now…have a nice day...

    May 09 8:41 AM | Link | Comment!
  • Why The Market Is Heading Lower

    Why the Market is Heading Lower.

    There is an unsettling resemblance in the chart pattern in Figure 1 which indicates the market is headed lower.

    (click to enlarge)

    As you can see on April 29, 2011 the DOW reached its high for the year to the accompaniment of heavy aggregate volume and extremely large blocks which were Insiders distributing to the unsuspecting hapless public and selling short.

    The block activity in Figure 2 is a subset of the overall mas of data we collected, organized and evaluated. Once again these are extremely large blocks in a number of issues which mark the terminal phase of the rally. The subsequent decline of 2000 points in the DOW came as no surprise. Whenever you witness transactions this large you can make two assumptions:

    First - it is a market heavyweight establishing a very important merchandising stance; and

    Second - extraordinary price consequences must follow.

    (click to enlarge)

    We see the same development taking place now albeit to a lesser extent. On March 16, 2012 once again at the market high, there were very large blocks traded. We suspect, the market may have reached its high for the year. We are not etching that prediction in stone. In fact we caution clients to avoid an irrational attachment to a plan. Nevertheless, we suspect that in all probability it is the most likely scenario given the facts (for the moment).

    Obviously the DOW is an index and It can be traded as a whole but the real opportunities will be in shorting (at least for now) individual issues.

    With regard to Indices averages:

    People sometimes make the fatal mistake of equating the movement of individual stocks with the DOW average. In addition, they tend to respond to price over volume. The DOW is often advanced off of its lows while many stocks in the broader market do not advance. This is because they have already been extensively distributed before the DOW advance. Therefore, they have had their run and are going absolutely nowhere in the course of the DOW advance. In this way the DOW will be used as an inducement to get investors to buy these stocks at their highs as well as other issues.

    One way to determine whether Insiders are using the DOW as a screen to cover their merchandising operations is to compare the DOW with the broader market. This is accomplished using or as measured by the advance decline line. When the advance decline line is not in unison with the DOW, investors should consider the possibility that the DOW is being used to evoke a response and what is the nature of the desired response. The object lesson here is to concentrate your attention on the individual stocks which arouse curiosity as a result of block activity and ignore the DOW as a predictor of what any individual issue is going to do.

    At this point, the method for calculating the DOW and the DOW Divisor is a suitable topic for consideration. As previously stated many people equate their own portfolio performance to the movement of the DOW. The market manipulators know that by advancing the DOW they induce investors to buy into the market because investors, as a whole, naively believe that all stocks will participate in the advance. In this way they keep investors in exactly the wrong phase of the merchandising cycle. It is important therefore to know how the index is structured and how the Insiders manipulate the index.

    The DOW average is not calculated simply by adding the prices of the thirty issues together to make the point total of the DOW. After the total number of points is added together there is a number called the DOW Divisor which is divided into the total number of DOW points in order to derive as what we know as the computed DOW average.

    When the Index was first constructed back in the 1930's the DOW Divisor was a number greater than 1. Through the replacement of DOW components and stock splits in the individual DOW issues, the divisor has been whittled away over time. The impact the shrinkage of the Divisor is having on the index is even more apparent when one considers that a 4 point move in IBM is equivalent to a 40 point move in the DOW average. This is analogous to a car accelerator or braking system that is over sensitive to the touch.

    The result is that it is much easier for the Insiders to manipulate the index because it is now a much more sensitive tool to create large price swings in the index without doing very much at all. Obviously, it is a purposeful manipulation of prices to cause investors to respond to changes in the index.

    As of this writing the DOW Divisor is set at 0.132129493. By contrast in the early 1990's the DOW Divisor was set at .7. If the point total of the DOW components was 1600 today, the computed DOW would be 12,109.33; whereas, in 1990 if the point total of the DOW components was 1600, the computed DOW would be at 2,285.71. It seems to me that our currency is not the only thing being inflated.

    That's it for now… Make a GREAT trade...

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    May 02 3:23 PM | Link | Comment!
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