Trading Analysis - 4th-8th March 2019

Alfacomp

10 March 2019

Following a significant recovery after what appeared to be a short-induced base of 32p two weeks ago we see sustained price stability despite the presence of rather low trading volumes.

Monday, 4th Mar 2019


An early 50K Sell bashed the SP down a little but the damage was not done until a quarter to nine when a number of significant (>30K) Sells knocked the bid down to 36.5p. Buyers allowed this to go further, falling to 36.0p before they started piling back in at a quarter-to-ten. By 10am the nett trade position had reached equilibrium once more.

Buying continued steadily ahead of selling, until 1pm when it seems a 250K Sell needed to be dropped in to counteract the nett Buy surplus that had built up before then. This was relatively balanced until just after 3pm when, suddenly out of nowhere, 2x100K trades appear, separated by a single second, and close to the top of the Ask. Unrelated ? - highly unlikely given the close timing.

So what are these ? As they appear at different prices it would be natural to consider the possibility that these are a rollover pair. Why at the top of the trading band, rather than at the bottom like the regular Bed & ISA pairs ? - well one explanation is that the trades are being transferred from a dealing account into a SIPP and that if these are transferred at the highest possible price then the tax relief is maximised (thanks BeingPatient for that insight.)

Another possible explanation, possibly more likely, given the close proximity to a pair of 50K trades just 15 minutes later and spaced 18 seconds apart is that someone wishes to create the impression that there is more share buying going on in the market than there actually is. 2x100K and 2x50K classed as Buys but really being rollovers would have ultimately yielded an end day nett trade position of +260K. Treating these pairs as rollovers leads us to the more neutral end day trade balance of c. -40K on a low 2.03M total volume.

Tuesday, 5th Mar 2019


Just like the previous day we see Sells dictating the very early price movement. Today Jagadish and other buyers waited until 37.0p before buying in any significant volume. 3x100K Sells sprinkled in before 1:30pm kept the nett trade position negative - the timing of these Sells makes it seem that they are not entirely without purpose.

A further tight sequence of 50K sized sells at 4pm is also worthy of mention. This has the result of dropping the SP from 37.25p to 36.5p - a full 2.1% - whether this was the intent of this sequence of trades, perhaps only time will tell.

Still, down only 2.1% on a day with very low volume (1.46M total) when Sells outnumber Buys by almost 2 to 1 seems like something of rather good result. One might suspect that the Market Makers may be aware that that this apparent flurry of Sells is not a fair reflection of the true market strength.

Wednesday, 6th Mar 2019


The rather unusual selling behaviour of the afternoon before seems to kick off again - three Sells over 39K in size in the first 90 seconds of trading suppress the Bid to 35p before strong buying comes in to send the nett trading position positive. Multiple significant buys push the nett excess of Buys to over 220,000 just after 9AM, and the Bid rises to 36.50p.

Again buying appears to continue strongly all day, with a strong period after 3pm leaving the nett trade position up around 300K at the end of the day, all on only modest Volume of 2.4M.

Or it did ... until the following sequence of reversal trades appeared 24 hours later:


A total of almost 375,000 trade reversals - what are they reversing - Buys, Sells or a mixture of both ?

The relevant trades are the green ones highlighted in the following, corrected, chart.


As you can see all three reversals are Buys. Again you might convince yourself that these trades, when originally reported may have encouraged traders to (temporarily) believe that there was significant buying pressure present. Without definitive proof that these trade reversals are not for otherwise justifiable reasons we can only speculate on the reasons behind them. What we can say for sure is that we have not been hoodwinked.

The corrected volumes are now 2.03M with a small net deficit of Buys of c. 77K - again trading seems surprisingly well balanced given the low volumes.


Thursday, 7th Mar 2019


Multiple 30K Buys just a few minutes into trading seemed yet again to draw out a 100K Sell to offset the nett trade imbalance.  A 150K Buy just 10 minutes later also seemed to prompt another 100K Sell, and then a 50K Sell 20 minutes later. As observed before the 100K Sells seem to be being dripped into the market to deal with the regular arrival of organic Buys.

A 250K Buy (not, as yet, reversed !) just before 10AM pushed the nett trade position over 400K for the first time, and the rough balance of trades over the next six-and-a-half hours kept this to c. 221K at closing time. The long periods of trade silence in the afternoon are quite unusual, but I believe are genuine and not a reporting artefact. Volume again was low at around 1.6M.

Friday, 8th March 2019


Trade analysis was very easy today. Set the Accumulation/Distribution line (the purple dividing line between Buys and Sells) to 36.65p and the job is done - simples!

I don't believe I have ever seen a day's trading before where this has been quiet. Volume was very low at just barely over 1M - the lowest figure in the last 6 months.

Conclusion

What can we conclude ? Volumes are very low and yet the SP remains in the 36p-38p band:


The volumes, however, reflect the behaviour of Buyers and Sellers, and less so of the Market Makers (unless they are heavily churning shares amongst themselves). In terms of understanding the MM's behaviour the trading balance is more revealing.

The plot below shows what happens when we average the nett trade position over 5 consecutive days - this removes much of the visual noise and allows us to see medium term trends, I have also increased the scale on the RH axis. As well as the daily average 400,000 nett excess of Buys for the 3 months from December to end February, you can see that Trading is currently very balanced - the Market Makers are not looking to grow or to contract any of their positions - in short they are not currently looking to play games.


What of course is most interesting about this is the fact that the last time this occurred was around the 1st of November last year. At that point, after briefly flirting with 30p five weeks earlier the Share Price took off and shot-up straight through the 30p barrier. I suspect that something similar may be about to happen, but that this time the barrier is the 40p one.

When the SP is moving up as fast as it does during the rerate in October/November the Market Makers most definitely cannot risk taking short positions because the SP may be a lot higher by the time that they can actually get to buy the shares they need. In periods like this they can only operate by offering out for sale those shares that they have just been able to buy. Strong buying pressure at these times can therefore have a very large impact on the share price - the SP unsticks and moves up producing a period of rapid rerating.

I suspect that with possibly transformative news of the Brits resource expected within a few days that MMs are keen to not be selling any more shares at low prices right now (i.e. extending any short positions they have.) The risk is too great that they may not be able to procure these shares sub 40p. The MMs currently participating in the market are selling only what they have just bought.

If Brits news arrives and the SP does take off I expect that anyone who has placed Sell instructions with a particular MM, at, say 40p, may find that those instructions get rapidly executed as the price rerate kicks off. Having handed their decision making processes over to the Market Makers they cannot blame anyone but themselves for losing out when the price approaches 50p yet again. 

This looks very well set up right now.

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