Trading Analysis - 21st Sept 2018

Alfacomp

22 September 2018

End of Day

Since the announcement of the illegal industrial action on the 7th of September and on the news of the buyout of Vametco minority partner Sojitz the share price has rebounded strongly - reaching levels close to previous highs. The price action on Friday the 21st Sept continued with buying strength - as can be seen from the chart below. The SP increased strongly on the rumour around 3pm that the strike action had finished and then again at 4.15pm when the negotiated agreement to end the strike was announced.


The trading activity after 3pm is as intense as I have ever seen - over 150 trades, with over a dozen delayed trading reports after hours. This period is shown in more detail in the chart below.

 

As first observed on the 18th September, and seen again on the 19th and the 20th there are numerous Erongo-style duplicate pairs seen once more. As the diagram below illustrates these pairs typically are interpreted as one Sell from a Private Investor followed by a precisely contemporaneous duplicate pair (same time, price and quantity) for a transfer from one market maker to another. The confirmed duplicate pairs are all marked in green on the charts above.

As the trading analysis on the 18th suggested the source of these shares for the duplicated pair trades might also be a warrant holder who is pre-selling the shares that they expect to receive when they exercise their warrants (see our warrants tracker for a complete list of outstanding warrants). As the diagram above illustrates the duplicate pair consists of two trades - the original sell and then the inter-MM hop - the second of these trades does not change the Market Makers nett trading position and so has consistently been ignored for the purposes of establishing and plotting the MMs trading position (the balance of Buys vs Sells for Private Investors, a positive excess indicates more Buys than Sells.)

A complete list of these duplicate pairs is given below. The sum total in the 4 days since the 18th September is 5.65M.

TimeShare PriceQuantityAccumulated Quantity
18-Sep-1816:12:3526300,000300,000
18-Sep-1811:58:4225.9300,000600,000
18-Sep-1811:27:2325.85250,000850,000
18-Sep-189:28:3825.75250,0001,100,000
18-Sep-189:28:1126250,0001,350,000
18-Sep-188:10:3625.6500,0001,850,000
19-Sep-1816:23:4926500,0002,350,000
19-Sep-1815:38:3026.4500,0002,850,000
20-Sep-1814:56:4626500,0003,350,000
21-Sep-1816:21:5626.3500,0003,850,000
21-Sep-1815:44:4826250,0004,100,000
21-Sep-1815:11:4325.550,0004,150,000
21-Sep-1813:03:1825.5250,0004,400,000
21-Sep-1812:07:1325.2250,0004,650,000
21-Sep-1811:52:1425.125250,0004,900,000
21-Sep-189:12:5825250,0005,150,000
21-Sep-188:46:1425.5500,0005,650,000

Those who have been studying the company for some time will no doubt be aware that that total amount is somewhat close to the sum total of Atlas warrants remaining. Atlas last exercised any of their warrants on the 6th of July, when the SP was approximately 25p - thus it is reasonable to consider the possibility that these duplicate pairs originate from Atlas. This reflects the fact that Atlas are short term financiers not long term investors and have demonstrated before that 25p is what they need to see to sell.

A further possibility, alluded to over the previous two weeks is that (perhaps only one of) the Market Makers have sold more shares that they have bought - they have effectively opened a short, betting on being able to buy the shares at lower prices than they bought them for. Let us explore this possibility also.

We shall start with the market makers nett trading position, which is charted against the share price below.


As can be see in the period between the strike announcement, on the 7th, and the announcement of the Sojitz buyout on the 13th the Market Makers, taken as a whole, consistently sold more shares than they bought. They (or one of their number) were betting on the strike continuing to drive down the share price. 

Plotted on the orange curve below is the accumulated total of these - a total of approximately 6M shares short by the 13th, at which point the behaviour stopped - possibly because of the Sojitz news and possibly because the depth of the short at that time was very close to the 6.25M remaining Atlas warrants (dotted red line). This may be just a coincidence or it might imply pre-knowledge by the MM that was short that the Sojitz announcement was coming out on the 13th.

If it is just a coincidence then it is also another remarkable coincidence that just as MMs nett trading position reverses and the MM short position is closed the duplicated trade pairs also appear (green line below).

There is of course no reason that the MM short position needs to be closed by using duplicated pairs - they could simply be closed by normal buys direct from Private Investors. For PIs to give up their shares I suspect that would require the Share Price to be very much higher - thus the source is very likely to be the weak Atlas warrants. Duplicated pairs are presumably used in this situation because the Market Maker that has bet by going short must be different to the one who is friends with Atlas and who has their ear when it comes to the warrants. It also helps to confuse us poor amateur investors.


The precise matching of the time and size of the MM short closing and the duplicate pair trades is very strongly suggestive of a connection between the two. I believe that the Atlas warrants have or are very close to being fully consumed and these have been used to fill a Market Maker held short.

A warrants exercise notice in the next few days will naturally conclude and prove this narrative, as well as no doubt heralding the next period of strong share price growth, just as the clearance of the Erongo overhang led to price appreciation from 8p to 24p. A similar percentage increase in share price (+200%) is also justifiable this time on fundamental valuation grounds.

This article only conveys the personal opinion of the author. Whilst every effort is made to ensure the content is accurate, we cannot guarantee the accuracy of the data shown. This article does not constitute professional, financial or investment advice and must not be used as a basis for making investment decisions.

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