Trading Analysis - 2nd Oct 2018

Alfacomp

2 October 2018

8:15AM


The appearance of an underbid trade of 15 shares at the opening auction was a clear sign of things to come - this single trade yields an apparent reduction in share price right at the start of the day. This was then followed up at 8:10am by a series of 50K,50K,25K,25K trades designed to be as visual as possible and to drop the share price. If someone had genuinely wanted to sell 150K shares they could have done this via a limit order - to do it in this way is clearly part of a shorting strategy - hoping to drive the SP lower and causing weak holders to sell up.

We have been here before, most notably on the 18th August 2017. No doubt the LSE board will soon be visited by new faces asking 'why the drop, why the company in freefall, etc'.

10:00AM


'Price drop provides special buying opportunity' - not exactly a surprise is it that there are more buys than sells this morning. What is surprising is that the Market Makers chose to delay the announcement of the 100K buy at 8:11:43 by an hour. Oh hang on this is of course no surprise, coming as it did right in the middle of the series of 50K/25K Sells shown highlighted in green this once again reinforces the simple fact that the Market Makers show to the general public only what they wish them to see. On this occasion this wished the public to see a share that was apparently in free-fall.

They may say that in order to create trading volume (aka the ill-defined 'liquidity') that they need to allow short-sellers to inject this kind of regular market chaos to shake the confidence of less well researched investors.

I say this is nonsense and actually undermines the purpose of the market as a mechanism for generating innovation through capitalism. Many markets do not allow shorting. 

End of Day    


Despite a stable balance of buying and selling after 10am (even a little more buying than selling) the market makers were able to persistently move the share price down. A flurry of sells around 3pm gave them the perfect opportunity to mark both the Bid and Ask down again, despite there being appearing to be virtually no imbalance between buys and sells.

Basically the market makers can arbitrarily move the share price down if they do not fear strong buying pressure putting them in the position of needing many millions of shares. Only once the SP reaches a point where this buying pressure returns, as it did somewhat at sub 27p.

Why should they bother to move the SP down like this - well if they hold no position day to day and run a truly balanced book then true they should not care whether the price rises or falls from one day to the next. If however there are market makers prepared to hold either long or short positions over a number of days(as was clearly demonstrated with the behaviour over the last few weeks) then you may expect them to be trying to acquire as many shares at these low prices, building a long position, and then allowing the share price to appreciate over the next couple of weeks, when they will be able to sell those shares at higher prices.

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