Monday 20th Nov 2017
The long awaited Q3 Vametco production results were published at 7am – these revealed increased sales (+7% YoY) and and revenue (+29%) but production down (-16%) due to unexpected downtime for a kiln repair. The discussion on the LSE board immediately after this RNS was essentially along the lines of “disappointing as it is not the knockout results we were hoping for”.Loose lips sink ships.
For the first 45 minutes of trading it appeared that nothing had happened – in reality there was actually a series of 100K sells, at increasingly lower prices. The Bid and Ask dropped at this point and Buyers moved in to buy repeatedly in the range 8.8-9.0p. This would have offset the earlier Sells were it not for an 8.5p sell of 235,295 at 9:02am. By itself this did not result in the Bid being dropped and neither did the arrival of 2x 100K Sells at 8.60p that arrived simultaneously at 10:50:05 (one of which was reported at the time and the other an hour later.) Things remained relatively stable until 12 noon.
The Bid and Ask having risen back to their opening levels seemed to indicate that the market had taken in the news – however at this point a series of sells started, culminating in a 100K sell at 12:55 at 8.66p, and then, once the Bid had fallen, another 100K Sell 3 minutes later at 12:58. Neither of these sells were reported at the time, and the LSE board was understandably confused. Buyers naturally returned but their buying was not sufficient to offset 100K Sells at 13:33 and 13:34.
A minute after two the Ask suddenly fell from 9p to 8.5p – MMs could see that there was lots of selling going on but needed to encourage more buyers by offering even lower prices to Buy. The precise reason did not become clear until the end of the day, when a 350K Sell at 8.25p was reported as having taken place at 14:01. This caused the nett trade position to spike down to below -1.5M for the first time in the last 3 months – it did not go below this level during the 18th August Flash short.
The 2pm Ask drop did not seem to encourage buyers – in fact the converse seemed to be true – as realistically sized Sells of 184,214 and 86,307 appeared – perhaps some shareholders had been spooked into selling, or had left Stop-Loss instructions with their brokers. Another 100K Sell appeared at 14:24 and the nett trade position spiked downwards again to below -1.8M. Again the MMs had to narrow the spread to permit these crazy giveway prices to actually be fed back to the buyers – if they were to keep the spread at their usual 0.75p the MMs would be at risk of ending up the day with 2M shares on their hands and maybe nobody willing to pay them to take them away.
Following the dropping of the Ask to 8.25p Buying rapidly returned – almost a million shares bought up in the next 40 minutes. The Ask rose back to 8.5p and then again back up to 8.75p. The first rise coincides with a large Buy of 233,613 but the second rise does not correlate with any significant Buys. There may of course still be significant Buys yet to be reported – I think this is likely as soon after this rise in Ask there is another very large and suspicious Sell – 300K at 8.125p. Were this not to be offset by an earlier large Buy then the MMs would finish the day having bought more that 800,000 shares in a falling market – not a position I believe that they would allow to arise.
Is this the simple market reaction to a Q3 production report that was less than the outstanding that was expected ?
Or is this simply opportunistic shorting timed to run off the back of the Q3 news. Given that there is circumstantial evidence that the 10th Nov short was closed by the exercising of the warrants originally granted to Beaufort Securities it is more than possible that the shorters having avoided the risk of being hit by a great Q3 RNS had simply returned when they sensed an opportunity to have another go.
The solution – as ever in a situation where shorters are giving away shares they do not own, is simply to take advantage of their recklessness and to Buy those shares. When they need to buy the shares they ultimately need to deliver they will discover that the price is more than they were able to get when they sold – the only question remains – when will they need to deliver the shares. How long do long-term shareholders have to get the funds together to take advantage of this pre-christmas giveaway ?
The evidence from the 18th August short is that this period is approximately 2-3 weeks. On this situation persistent buying and holding for the next 1-2 weeks will then see a short squeeze develop that will push the SP not only back to its original levels, but higher still… or we’ll get another warrants exercise notice like we did following the 10th November Short.