Market Thoughts - Feb 20 – Gilead Merger Might be Back On

Disclaimer: This post does not constitute financial advice. Author has a long position in Gilead and Pfizer. Do your own due diligence before making an investment.

Hold on to your butts, because the Gilead manipulation is in overdrive.

Near the end of 2020 I was pretty convinced that Gilead was about to be bought out, probably by Roche. From December 31st to January 20th, this became less likely.

Gilead was climbing. It went from a low of $56.56 to about $68 in less than a month. Coincidently this was right after we’d published our entire merger thesis. It’s possible that the manipulative parties involved read our articles, got spooked by the attention, and decided to postpone it or call it off.

As Gilead’s share price increased, the spread between it and Roche began to shrink. The lower the spread in their market caps, the lower the chance of a buyout. (This is because the buyout premium % would lower as Gilead goes up. The lower the premium, the less likely investors are to agree to a merger.)

For a few weeks in early January, Gilead was reacting normally. When biotech indexes went up, Gilead went up. When indexes like $SPY went up, Gilead went up. For a minute there, I thought we were past this.

On February 4th, Gilead reported great earnings, helped by record-setting sales of remdesivir. On the conference call, management made it clear they were turning Gilead into a growth company again. They even increased the dividend by 4.4%. The next day the stock jumped.

The following Monday, however, the stock began to fall. There was no reason for this. No bad news. No stock market or biotech collapse. Simply good old-fashioned manipulation.

In addition to being red during the day, Gilead also returned to being red pre-market and red after-hours. (In this article: Why Your Stock is Always Red, I outline how and why Wall Street does this.)

With the red, came the bashers and the trolls.

They post constantly on various message boards, but usually only during market hours. Most normal people will post at various times. A regular investor might post comments on a weekend. Gilead trolls almost never do. Their negative posts are mostly limited to market hours. (Why work when someone isn’t paying you to?)

I started watching the posts very closely. And discovered several interesting things.

1. The dropping price of Gilead is almost directly co-related to negative posts. When Gilead is tanking, the negative posts start showing up.

2. When Gilead is allowed to climb upwards, the negative posts stop across all platforms. The bears go quiet for hours while Gilead is going up.

3. Bearish posts seemed to be tied to current sentiment. As in, if more people are posting positive comments, more fake bear accounts show up to offset the positivity. You can test this yourself. Simply post a few positive comments on a stock you think is being manipulated. If the positive sentiment you’re generating is offset right away by negative posts…your stock is probably being manipulated.

To that extent, I think that a lot of this time I’ve likely been arguing with bots.

Everyone talks about stock trading algorithms, but I now believe these “algos” extend beyond merely buying and selling securities.

Wall Street is probably running bots that trade stocks and post comments at the same time.

There’s just too much correlation. You can test this yourself by watching the 1-minute chart on any stock that is currently being manipulated.

As your stock drops, bearish posts will appear near simultaneously.

I believe this is so hedge funds and banks can cover their illegal market manipulation. If they’re ever investigated by the SEC (lol) they can point to the negative sentiment and say, “See, this is why we shorted it.”

All they would need is an intermediary. I’m sure there’s a firm out there that is willing to provide such services. A troll factory masquerading as a social media management firm.

I suspect Wall Street approaches these firms, tells them something like, “We’re bearish on Gilead,” and that’s the end of the conversation. Wall Street writes them a check, and the firm goes to work.

When Wall Street shorts the stock, their social media firm post negative comments. All of this can be automated. No direct agreement is ever made to commit securities fraud. No contract is signed.

Wednesday the 17th around noon, the bearish posts on Gilead boards evaporated across multiple platforms. Gilead stock began to climb. It even went green, but right away the bears returned. They started posting negative garbage, and the stock began to drop.

There is far too much correlation between negative posts and dropping stock prices for this to be a coincidence.

Most people do not short stocks.

They buy them. If you’re an ordinary investor like me, then 99% of the time you’re probably going long. Most people don’t have margin accounts. The don’t have options trading enabled. They don’t understand how calls and puts work.

It’s impossible to know what percentage of investors are involved in betting that stocks will fall, but it’s definitely low. Maybe even lower than 1%.

During the heat of the GameStop explosion, I noticed that almost 50% of the comments on GameStop stock boards were from “bearish” users. But if only a small percentage of people short stocks…what accounts for this?

Possibly fake comments by fake users. Or multiple posts by the same user using different accounts.

Hedge funds and banks have near unlimited resources. Paying someone to manipulate sentiment is probably very cheap. It’s likely being outsourced to a country with cheap labor.

Fake comments and fake reviews have plagued the internet since creation. The idea that somehow stock message boards are immune this is ludicrous. If anything, they’re likely more infected with fake posts than Amazon is with fake reviews. Amazon is at least incented to protect their customers from fraudulent products. Stock message boards only care about traffic because more traffic means more ad revenue.

Tuesday the 16th was a very interesting day. There was no bad news, no market crash, and no biotech index crash, but Gilead dropped as much as 4%. Most people were very surprised, until late after noon when a couple of 1 million share blocks were purchased.

The stock was obviously tanked down so a bank or fund could load up.

I got to thinking about this, because I’ve noticed for a while now that when they’re tanking Gilead early in the week, it tends to drop about 1-2%, and then another 1-2% on Tuesday. But Tuesday the 17th it dropped 4%.

I wondered, why would they be so aggressive about blowing it up like that? They’re making their manipulation extremely obvious. Then I realized that Monday was a market holiday. It’s possible that their algorithm is set to drop the stock by 4% by Tuesday afternoon, and they simply forgot to compensate for the market holiday. So instead of dropping it slowly, the algorithm had some catching up to do.

Also on Tuesday there was some monster option buying. Someone purchased more than 20,000 calls on Gilead. 70 strike for April and May. On Wednesday, another 10,000 call block went through for June. 70 strike again. This is roughly a $4-5 million dollar bet that Gilead will be above $72ish before expiration. Not the largest bet in the universe, but definitely not one by an ordinary person.

Given the large uptick in manipulation, and the excessive call purchases at a strike that’s outside the money, I believe the merger thesis is still intact. (Although it’s also possible that fantastic news is about to drop.)

Purchasing calls at a 70 strike allows the buyer to shield themselves from the SEC by saying, “Look there are a lot of catalysts coming up, and we thought it might jump.”

If the buyout is at 90, and this entity had purchased calls at 80 because they’re cheaper, they’d face closer scrutiny.

Something incredibly shady is still going on with the market. Gilead especially.

It’s possible that the manipulation in large-cap stocks like Gilead and Pfizer is being done by a cartel for the sole purpose of burning options.

If you’re looking to take advantage of a buyout, or perhaps a great readout from inhaled remdesivir or trodelvy, then the safest bet might be just holding the stock.

If you open up a Gilead six-month chart you’ll see this pattern. I call it The Castle.

I’ve seen this pattern before, sometimes right before a stock jumps extremely high. I suspect this pattern is extremely effective at getting ordinary investors to sell their stock.

Stock goes up, investors get exited.

Stock drops, investors are annoyed.

Stock goes back up again, investors are warry.

Stock drops again, investors sell.

They’re being conditioned that every time their stock goes up, it will go back down again. So they try to time the market. If the stock goes up again, they’ll sell because they “know it’ll drop right back down again.” This might work a few times, but eventually the ordinary investor loses out on the monster gains when the stock finally goes parabolic.

Wall Street makes money with this pattern in multiple ways. They burn calls. They burn puts. They make money buying up, shorting down. And once the volume dries up, and they’ve stolen all the shares, the stock is allowed to once again behave as it normally should.

Society does not need an organization that does this. When acting in this capacity, Wall Street is not creating value for society. They’re leeching value from others. If the entities that manipulate stocks vanished overnight, society would improve immensely.

Make no mistake. This is not a free market. The efficient-market hypothesis is completely worthless. Almost every stock on the market is being manipulated in one way or another.

As long as you can accept this, you can stay sane. I keep a note above my desk that says: Wall Street controls the price of stocks.

I recommend you have one as well. It might relax you when your stock drops 5% for no reason.

Make sure to check out this post on stock manipulation: 10 Signs Your Stock is Being Manipulated. I’ll be writing some more articles like this in the coming weeks.

I’m still buying Gilead as it remains criminally undervalued.

Good luck. – David Stone