Trading Analysis - 5th Oct 2018


7 October 2018

End of Day

The sellers strike of the previous day showed significant price appreciation on rather small buying volumes - but still led to over 800,000 more shares being sold by the Market Makers than were bought by them. 

Usually this is a bad sign - if the market makers have been prepared to sell shares that they do not have, then they will need to buy those shares, and this means that they are likely to walk the price down to get them at prices less than they just received for those shares. They can do this if the buying pressure is fairly weak and there are still holders prepared to sell shares to them - in this situation the Market Makers can walk the price down with impunity for they do not need to fear the increased buying volumes that would normally come when the price is dropped.

Volumes were again light (less than 2M shares traded) - the SP was walked down following a 100K Sell at a quarter past 8, then another an hour later and a third at 10am. Relatively weak buying for the rest of the day turned a nett trade deficit of -300K into only -100K. This is perhaps only a small dent in the 800K excess of Buys in the previous day, however if we look at the accumulated nett trade position we can see a different scenario which may hold out more hope for SP price appreciation:

As can be seen from the top graph it was the during the period of the 5 days from the 19th to the 25th Sept that the Market Makers bought roughly 10 Million shares more from shareholders than they sold to them.

Following the 1st Oct Holdings RNS we may assume that a significant fraction of this 10 Million came from the 8.13M that First Island sold prior to the 3% limit being breached on the 28th Sept. My belief is that the first 7 Million of the First Island sells came as duplicated pairs and these were handled as pairs because a second market maker needed to close a c. 7M short position that they had built up during the strike. This 7M short was subsequently devastated on the 13th Sept by the announcement by the company of the Sojitz buyout on that day.

The 10 Million shares bought by the Market Makers between the 19th and 25th were acquired at prices between 26.5p and 28p - these were to fill in for shares sold to PIs (between the 5th and 13th Sept) at around 21.5p - the Market Makers lost an average of c. 5.5p per share on this short. However that was for perhaps only 7 Million of the 10M shares bought in. For the remaining 3 Million shares - they went long on the 25th Sept and were able to sell most of these at prices in excess of 31p - thus making perhaps 4p per share. The subsequent price rise above 30p allowed the MMs to recoup something like 30% of their overall losses on their Vametco strike short. Still they might have still lost more than £250,000 on this short - maybe a salutary lesson which may go some way to explaining their current behaviour.

It would appear that the 800K excess of Buys from Thursday has returned the MM accumulated nett trading position to very close to neutrality - thus it seems that the Market Makers don't now have an obvious incentive to walk the price down from here, as they are not effectively short. On Friday the MMs position remained close to neutrality - it looks like they may have decided that taking a risk by shorting this share is perhaps not worth the candle.

Thus any significant excess buying pressure, especially if it is kept up for any number of days, may lead to SP appreciation and may not be simply seized upon by the Market Makers as an opportunity to spike buyers then walk the price down. 

I do not believe that the few 100K Sells we have seen in the last couple of days are from First Island as I believe that all those Sells came in 250K increments.

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