[b]"How to tell a correctly shorted stock versus a short attack bluff"[/b]
[b]Read this article and think about all the external factors that you see every day. Also wouldn't a short bluff as described below entail having someone do your dirty work for you so you can avoid a charge of manipulation as noted below? [/b]
Since David Einhorn's innocuous questions on Herbalife's conference call seems to be the event that started the short attack on Herbalife, and since Einhorn loves poker, I will use poker terms to explain how you can determine whether a stock is shorted for good reasons or just a bluff. If you believe you have a winning hand in poker, you want everyone else to put in as much cash as they possible can. You don't want to tip them off in any fashion that you have the winning hand. You want the pot to as big as possible when you show your hand. If you don't have a good hand and are bluffing, you need to be sneaky putting in bets when you really know you don't have a good hand hoping that the other players fold their winning hands. You don't even want others to put more cash in the pot since you want them to drop out of the game. First you need to understand that the object for shorts is selling as high as they can and then buying as low as they can if they have to cover their short position. For those of you who are not familiar with selling stock short, here is a link to explain short selling. Also when longs are selling their positions, they will always try to sell their shares at the highest price they can get.
[b]If you knew a company's share price was really overpriced for any reason, you would not do anything to tip anyone else off until you had shorted all the shares you could.[/b] Then, given the right opportunity to show your hand, you would explain your position as to why the shares were over priced in a logical fashion. Yes, there would be other shorts jump in to help drive the share price down but it wouldn't necessarily be about driving the share price down based mainly upon high volume trading. You would be ok with longs coming into the market to drive the share price up (more cash in the pot) since it would give you more of an opportunity to short at a higher price before your real prediction came true. [b]If you were a short bluffing (basically manipulating a shares' price) about a company's overvalued share price, you might not want to draw attention to yourself since you could get accused of stock manipulation so you would hope (or plan for) others to get involved and to present seemingly good reasons to short the stock.
[color=red]You would want to put as much fear into longs as possible and would use high volume short trading as well as buying to drive the share price down as low as you can and as long as you can. [/color]You really want the longs to fold and to get out of the game. If you are consistently seeing sellers overwhelming buyers driving a share price down as a stock seems to be going up, I can assure you it's probably shorts selling since longs are totally motivated to sell their shares at the highest possible selling price."[/b]
