The "Pump & Dump" Market

Reminiscences of a Shrub Operator

“If it looks like a Pump, and it walks like a Pump, it’s a Pump & Dump”

- Le Shrub, from “Reminiscences of a Shrub Operator”

On Monday, the “Roaring Kitty” of Gamestop fame (ticker: GME) disclosed that he was long 5m shares of GME worth $116m and 120,000 June $20 calls, worth more than $60m. The stock was up nearly +100% in the pre-market just on this disclosure.

This made me deeply uncomfortable. It didn’t make much sense. Why disclose such a massive short-dated call position? Usually, when the Market sniffs a trapped whale, the hounds are out to punish such insolence. After all, this isn’t anymore some dude in his parents’ basement that bought a deep value stock at $2 with 100% short interest and who’s going against the “system”. Now this is a dude swinging a $200m position with a plan. What that plan is, is not yet clear. But if it looks and walks like a Pump…

The stock opened up +75% and closed up “only” +21%. Roaring Kitty subsequently disclosed that he didn’t sell any of his position. I will go out on a limb to say that the stock will close at $20 on June 21st expiry date. That would be the most “meme” outcome after all.

On Monday, the Equity Futures were up +1% in the Pre-Market and through the Market Open, as if to celebrate this “Pump & Dump” to Retail holders. The Monday rally was even more impressive because it followed the epic “last-minute pump” from Friday (which I documented in our last post “Trading Meme Tops”).

And then it dawned on me…. since Friday, the whole Market trades like a “Pump & Dump”…

This is where I get called a “conspiracy theorist” etc so bear with me.

“A Chart is worth a thousand Tweets”, a shrub once said.

The chart below shows the last three days of trading for the Nasdaq futures. I have marked the regular trading sessions when the Stock Market is open:

• “Pre & Post-Market Pump”: One can obviously notice a Pre-market and a Post-market “Pump” of the Futures.

• “Regular Market Dump”: One can notice a steep sell-off that starts within an hour from Market Open and continues throughout the day into the Market Close.

• On Friday, the Market was saved by a miraculous “pump” in the last 20 minutes that we labelled the “Month-end Mystery Rally”.

• On Monday, the Market was saved only in the Post-market where “they” managed to ramp the Nasdaq futures nicely by 100 points. No sweat.

  

Where am I getting at?

Why did the Roaring Kitty release his account statement? To SIGNAL to the monkeys that he’s bullish GME and that he’s “yolo-ing” GME into the June expiry. We can speculate, without knowing, that he wants to “pump” in order to “dump” (I’m giving him the benefit of the doubt).

Now back to the Market. Why are the WHALES pumping the futures before the Market open and at / after the Market close?

I’m going to take a wild guess again: the Whales can’t sell stocks in the-pre market (easily). So they want to signal to the Monkeys in the pre-Market using futures that all is well and good and bullish so that the Monkeys buy stocks during regular market hours while the Whales dump them. And then, come end of day, the Whales come back and “paint the tape” with a nice “pump” so that everything looks bullish again. Rinse and Repeat. Who cares what’s happening under the hood right?

This, of course, is the wild speculation of a shrub and not to be taken seriously. Don’t assume that “Whales” and “Monkeys” consciously act like this. But it helps to visualize the Current Market Setup and gives food for thought (The last time we did such visualization was with Tamagotchis and that worked out spectacularly well, so don’t diss it!)

I have been running a 70% long portfolio most of the year and now I feel uncomfortable. So I put some shorts in place to reduce my net long exposure, though I’m still overall long.

Importantly, I also have my “Mike Wilson Puts” to further protect my portfolio and keep me company too. Bless.

Disclaimer:

This isn’t financial advice. This is the equivalent of reading MAD magazine for finance but worse: This is the trading blog of a shrub.

Don’t be Stupid. Seriously. How many times do I have to repeat this …