Video Synopsis

In this video: Tim and Matt talk about one of the most popular strategies for short selling, where short sellers identify stocks that are pumped up based on promotions and take advantage of the inevitable crash. 

Shorting this pattern isn’t so easy anymore — what was once commonly called the “pump and dump” has evolved and changed over the years.

However, this doesn’t mean the phenomenon of price manipulation doesn’t still happen. Tim explains the anatomy of a stock promotion and how he and his students approach hyped-up stocks in the current market. 

Throughout the text, you’ll see several highlighted key points. Wanna take this guide even further? Refer to your “30-Day Trading Starter Kit” guide.

Once you’re ready, answer the questions on the “Shorting Promotions: Anatomy of a Pump: Questions for Review” area of the website. 

Several stock market terms referenced — they’re highlighted in orange text. You can find the definitions in the “30-Day Trading Boot Camp Glossary.” 

Understanding the mechanics of stock promotions is important for any trader, whether they go long or short. Study up! 

Shorting Promotions: Anatomy of a Pump

Matt Monaco: 

All right. So today we’re going to look at another kind of…

Tim Sykes:

I was looking at the background. He told me how beautiful it was. I haven’t looked outside yet today. I’m focused on this screen.

Matt Monaco:

That makes sense. You’re a busy man.

Tim Sykes:

Yeah.

Matt Monaco:

We’re going to focus on a short pattern. I know a lot of your students like to short these, but you can kind of long them. 

They’re really dangerous nowadays, but that’s just promotions. Also known as pump and dumps by some people, they were really popular in the past. Recently, the last couple of years, they’ve kind of faded off. Why is that?

Tim Sykes:

If you’ve seen the movie “The Wolf of Wall Street,” you know there’s no one wolf of Wall Street anymore. He’s busy trying to teach people how to be career criminals. 

Now, there are lots of mini-wolves of Wall Street, and they try to promote these companies, but they don’t have it anymore, you know? A lot of them have been shut down. 

They used to do … I saw WhatsApp promotions, I saw emails, I saw faxes. They used to do hard copy mailings, then they resorted to email, and now Twitter promotions. As long as you put a disclaimer on the bottom of your advertisement saying, “Hey, we’ve been paid, $20,000 or 200,000 shares of cash to advertise this stock to you,” technically it’s legal.

But the way that they really get their stock prices up, they do all kinds of shady stuff in the background. Their job is — they get paid in shares or cash or a combination — to get the stock up because whoever is paying them is dumping the shares. 

This is where the term “pump and dump” comes from, right? Their job is to pump the shares up so that the insiders or whoever is paying, sometimes it’s an outside party, dumps the shares, right? 

Key Point: Promoters Get Paid to Pump Stock Prices

Penny stocks can experience short-lived spikes as a result of paid promoters working hard to pump up the price. Then insiders (or whoever paid for the promotion) can sell off their shares for a profit. It’s a tricky pattern to play, because what used to be called the “pump and dump” scheme has evolved and changed a lot over the years. 

So let’s say you’re some unscrupulous businessman and you’re like, “I have five million shares of this little piece of crap penny stock. How do I sell it? There’s not enough volume. No one cares about it. Let me hire a firm. Let me pay them…” 

If you have five million shares and the stock is trading at $0.02 a share and it’s worthless, you want to sell it at a dollar a share.

So, theoretically, if you sell all the shares at a dollar a share, you make, you know, five million dollars. So let’s spend $700,000 amongst different promoters to get the stock up from a penny to $1. 

They send out tweets, they send out emails, they pump out a bunch of press releases. “Look, we found gold. Look, we have a crypto mining company. Look, we’re delivering weed now. Look, we have the cure for coronavirus.” 

Whatever hype they can generate to get people to buy this stock that was trading at a penny or two when no one cared about it. Let’s say they’re successful in spending $700,000 and they get the stock up to $1.50, $1.75, $2 a share. The insiders or whoever paid for the pump mailers or the pump tweets or whatever they did to get the stock up, they’re selling shares all along the way.

They’re also buying shares. They’re trying to get the stock up. So they’re pretending that there’s more buying power than there is. They’re buying let’s say 5,000 shares on a day or 20,000 shares on the day and selling 200,000 shares. 

Maybe they want to get a stock up a lot, so they buy a hundred thousand shares so that it’s reported on all the message boards, “Somebody bought a hundred thousand shares.” Then they dump 300,000 shares the same day, whatever they can do to generate interest, to get the stock up. So that — let’s say they spend $700,000 on the promotion, maybe they spend another $300,000 buying the stock. 

So they spend a million dollars, but if they can cash out at, let’s say, $1.50, they make $7.5 million. $7.5 million minus the $1 million they spent getting the stock up, they make $6.5 million.

Once they sell all their shares, there’s no reason to pump it up. There’s no reason for any more press releases. The stock crashes, usually in one, two, three, four days. 

Sometimes, the promoters don’t sell their entire stake because they do multiple promotions so that they don’t want the stock dropping 90% because then there might be an investigation. They might get found out and they’d have to resort to going to Panama or Belize or Cyprus or one of these countries that a lot of promoters seem to congregate in.

Key Point: Once Promoters Sell, There’s No Reason to Keep Pumping

Once promoters sell their shares in the hyped-up stock, there’s no reason to keep pumping it. Usually, this leads to a crash within a few days. Why? Remember, trading is supply vs demand. The promotions drive the price up by creating temporary demand. After the promotion the stock tanks due to the drop in demand. 

Matt Monaco:

Yeah. And for new people, sometimes promotions kind of look safe if they’re not educated because it looks like it’s just steadily going up day after day after day, and then there’s that one or two days where it’ll just wipe out entire … 

Tim Sykes:

100%. Pull up a chart. Are you watching DEVV?

Matt Monaco:

Yep. I have that one, and I’m going to pull up RIVX, which is kind of the aftermath of one. But here’s DEVV, which is currently being promoted.

Tim Sykes:

And the volume is rather low on this, but you can see each of these candles represents one day. It goes up a little bit every single day and everyone’s like, “Oh, it looks amazing.” 

And then you see that one big red day. That’s when the promoters are selling their blocks, and you can see a little what the price actions should be like if it weren’t being promoted every single day, then it keeps coming back up. 

Eventually, this will have a giant red day, and eventually, this will crash and go to zero. We don’t know when, but usually you can tell when the mailers stopped, when they stopped talking about it, when they run out of budget for the promotion. Pull up the other one you were going to pull up.

Matt Monaco:

This is RIVX, which was promoted earlier this year.

Tim Sykes:

So RIVX, same thing you see every single day, “Look how good it looks.” They take advantage of financially naive people. They promote it, they pitch it, and then all in one day, look at that, it crashes from $11 down to the $3s, and then a few more days later, and then it crashes pretty much down to zero.

Matt Monaco:

Yeah. And this one was actually halted here on January 8 for about three weeks, just because this crash day, like you were saying, is just so severe that the authorities took notice of it.

Tim Sykes:

The authorities don’t really see these because they’re small-time scams and they only see it when enough people complain, so if the promoters let this stuff drop too quickly, then they’ll get a thousand complaints letters to the SEC and then they’ll get investigated. 

So, usually, promoters try to drop it in an orchestrated manner, too. This is what’s so crazy. It’s not just a pump on the way up. It’s an orchestrated dump on the way down, although they don’t really seem to be doing a good job lately and a lot of the promoters get investigated, their email list gets shut down, they sell their email list. It’s just a dying industry. 

The good news is, lately, we don’t even need promoters because short sellers are the new promoters and they’re spiking stocks out faster and more efficiently than the promoters ever did. It’s actually the exact opposite of what short sellers want to do. It goes against everything they believe in, but that’s what happens in a crowded market. We’re seeing these gigantic short squeezes.

Key Point: Short Sellers Are the New Promoters

Short selling is a crowded game right now. Over-aggressive newbie short sellers are creating massive short squeezes. At one point, Tim even referred to them as short squeeze supernovas.     

Matt Monaco:

Now, how can people take advantage once they’re educated on a promotion stock like this? It’s a lot more difficult than it used to be, but you still have opportunities.

Tim Sykes:

I think it’s actually easier. I think there’s more shares to short, there’s more brokers that are offering shares to short. I have a whole music video called “No Borrow, No Cry” that I made when I watched scam after scam just collapse. 

I exposed many of them on TimothySykes.com, but it didn’t matter. There were no shares to short, and I would have to sing this song because I couldn’t get a borrow … Because you want to short these scams … you want to bet against them. But there are so few shares available to the short.

But my student, Tim Lento, was actually closing in on $500,000 in profits*, and he shorts these kinds of plays, holds them for several weeks or several months. 

(*Please note: These results are not typical. Most traders lose money. Always remember trading is risky. Never risk more than you can afford.)

He’s using Interactive Brokers. He has a whole system and he’s doing well. So there’s an opportunity to short it. But, for me, I like dip buying these panics. I don’t care if the stock gets halted. I don’t care if it crashes eventually. I like dip buying the morning panics.

Pull up DECN. DECN wasn’t promoted per se, but it falls in the category of one of these sketchy type promotions. It’s red because it’s halted right now as we’re doing this … Zoom out first before you show the crash. 

So this was spiking up because they supposedly had a 15-minute test for the coronavirus which would have made it incredible. The stock was spiking for several weeks. From just a few pennies a share, it got all the way up to 50 cents a share.

Now zoom in on that one day. I called this to a T. Literally, I was saying, “The news is coming out. Look for a panic. Come on, big panic.” As it was panicking, I was like, “Look at the merciless selling.” 

I had a perfect buy alert in the low $0.20s. I sold a little too soon in the high $0.20s, made $3,000 in a few minutes.* It actually nearly doubled from 21 cents up to 37 cents. So you can dip buy these morning panics and sell into the bounce. This is a classic #4, #5 pattern from my seven-step framework.

Key Point: You Don’t Have to Short Sell This Pattern to Profit

As Tim notes, you don’t have to be a short seller to take advantage of pumped up stocks. These days, he prefers to go long by dip buying the morning panics instead.

Matt Monaco:

One second. I’m going to pull up … You traded RIVX, and I think you dip bought that one.

Tim Sykes: 

Yeah. If the crash is big enough, I’m going to try to dip buy it. DECN — I would’ve loaded up a lot more, but the crash happened literally in four minutes. 

It went from 50 cents to 20 cents in four minutes. Usually, these kinds of crashes happen over 15, 20, 30 minutes, so you can get your order set. I would have loaded up. I mean, I would have gone so big on DECN. It could have been a $100,000 profit* if I had more time. But I didn’t, so I don’t.

Matt Monaco:

So here’s RIVX. Do you see that, Tim?

Tim Sykes:

Yeah.

Matt Monaco:

This was the day that it crashed, and the same pattern we just saw on DECN. You dip on it down here, and this spike was massive, too, basically 100%.

Tim Sykes:

This one almost went all the way back to break even before it actually finished the day pretty strong, and it was crazy. 

DECN actually got halted the next day. RIVX, I don’t remember the exact day that it eventually crashed. But you had all morning to buy it anywhere in the $3s or $4s and sell it in the $5s or $6s. It wasn’t as liquid. It’s a little higher priced or very much higher priced. But it’s the same kind of pattern and it’s created by the constant promotion.

When the promoter sells out all their shares, the stop loss is going off … all these topics that we’ve talked about. Once you combine your knowledge and mastery of all these different topics, you start seeing how this stuff plays out… 

It’s not enough just to memorize a pattern. It’s “Why is this happening? How is this happening?” And then how can you modulate your trades. On RIVX, I would have had a much smaller position. DECN, like I said, I was going to load up because it was so perfect. But it crashed so quickly. 

I was literally trying to video record my screen. I do video lessons, and I talk into my laptop all day, so I have these little spit bubbles all over my screen. So I’m literally like trying to clean off my screen as I’m trying to record this as the stock is dropping. It was such a mess. I probably should have just clicked the record screen now. In hindsight, that would have been easier.

Key Point: It’s Not Enough to Memorize a Pattern

Trading isn’t just about memorizing patterns. It doesn’t matter if you’re shorting, dip buying the panic, or any other pattern. It’s about observing it, stalking it, and understanding the nuances. This can help you adapt and modulate your trades.  

But I still made $3,000, and I called it to a T. The question is how prepared will you be for the next morning panic? Or, if you like shorting it … I had several students shorting it. 

I think Kyle Williams was shorting it from 47 cents to 27 cents. I think he made like $2,000.* Tim Grittani was actually going long from earlier in the week, from the $0.20s to the $0.40s. He made $40,000.* 

There are different opportunities along the way. You don’t just have to focus on the crash and the dip buy. Once you start understanding how these pumps or pump-like charts work, you can choose different parts along the way.

Matt Monaco:

Absolutely. And the one thing that’s just common among all these promotions, it’s not really a matter of if, it’s when are they going to crash and fail. 

They’ll run … sometimes, it’s only a couple of weeks. Sometimes, it’s a couple of months. But, ultimately, they’ll fail. They’ll have that crash day, which is why … and what Tim Lento tries to take advantage of and he does so well.

Tim Sykes:

And this is what I love. It’s like knowing the ending of the book. It’s knowing the ending of the movie. It’s not as hard as you might think. 

This is why I laugh when people rip on penny stocks, because they’re like, “Oh, it’s all manipulated. It’s all unpredictable.” And I’m like, “It is manipulated, but it is also predictable because it’s manipulated once you start understanding the forces at work here.” 

No different than with UAVS or CAPR, recent big supernovas, they’re spiking because of shorts versus longs. That’s a very inexact science, far different than promotions. But at least you’re understanding the forces pushing the stock up and pushing the price down.

That’s why I want people to learn this niche. Learn about every angle. Learn about the players. That way, you can have an edge over everybody else who thinks that they’re just trading a company that found the cure to coronavirus. Or they’re looking at a company based on profit and revenue or lack of cash. 

I can’t tell you how many short sellers say, “This company should go down. There’s no cash in the bank.” Meanwhile, it creates the biggest short squeeze ever because they don’t understand the risk/reward. Don’t make that mistake, okay? Don’t be ignorant. Don’t risk your hard-earned money and not know how the game works. That’s a mistake.

Matt Monaco:

I love it. That’s all I got for today. Again, thanks as always.

Tim Sykes:

Cheers, man.