elephant in the room, page-9

This extracts is interesting here from an article on short selling (ref previously posted):
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The Avalanche Effect

If someone sells enough shares in a given stock in a sufficiently large quantity, it will overwhelm the bidders and force the market price down. As the share price falls, there is an increasing probability that margin calls and stop-loss orders will be triggered, further adding to selling pressure, creating an avalanche-like effect, causing the share price to fall even further.

The only way to counter a false oversupply caused by undiclosed shorting is for someone to know, or suspect that something fishy is going on, and fight back by buying. In this currently depressed market, not many people would have the stomach for that action. Most participants would interpret a sudden increase in selling as a precursor to the announcement of bad news to the market.



Vulnerable Shares

To maximise the likelihood of success, the hedge fund must choose a share that is vulnerable to this kind of manipulation. The best candidates are:

* Mid to large cap shares in companies that are commonly held as long-term investments

* Shares with good liquidity ? a large daily volume traded, to ensure that the hedge fund can enter and exit their position quickly.

* Shares in companies who have rivals that have announced bad news, which could be perceived to affect their sector as a whole. For example, the Investment Bank Babcock and Brown?s (BNB) recent troubles that may have provoked rumours and speculation about their rival Macquarie Bank (MQG) whose shares experienced wild volatility recently.

* Those companies who are experiencing difficulties or are in negotiations with creditors or buyers, e.g. ABC Learning.

* Shares in companies that margin lenders lend against and are are available for trading by CFD providers ? that maximises the opportunities for triggering margin-calls and stop-loss orders, fuelling the avalanche of selling.

It is also possible for someone to intentionally spread false rumours to create a fall. Whilst this is effective, it is illegal and could result in prosecution, and it is not strictly necessary if the above steps are followed.
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And why it only works on the short side:

"The opposite of a stop-loss order is called a start-gain order, and there are very few of those."

See:
http://herestrouble.com/archive/the-great-short-selling-swindle-explained/