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Sorry, folks, that the Trading Alert is two days late this week. There were data issues at the Exchange again this past Tuesday morning, resulting in widespread unavailability of order flow data for the preceding Friday (5/11), particularly for smallcaps and midcaps.
We immediately saw the reasons why, but first, remember what we said last week? “The magical perfection of order-flow balance evident to us over the past three weeks showed fissures….”
Sure enough, a radical change in strategy at big program traders and structured-products desks unfolded 5/8-10. The primary culprit: Goldman Sachs. We’ve said before that Goldman can single-handedly move markets. If your stock experienced basing on 5/8-9, closing on nearly the same pattern each day, and then took a significant hit on 5/10, in all probability you were a victim of this quantitative shift (we can know with great precision, however, by tracking where a given issue's order flow executes).
These patterns then had ripple effects, causing some fundamental investors to depart, altering algorithmic execution, pushing shares onto short-term platforms again, and helping the Dow continue to forge ahead (money moves to safety and deals).
Speaking of deals, we believe a chief cause behind equity-markets seismology is the flight of more capital from public equity markets in pursuit of this crazy, spring blossoming of private equity deals we’re observing. Don’t know about you, but I must see three or four announcements about multi-billion-dollar private deals every day.
What to do, IROs? Well, aside from going private it’s simply essential to know the difference between fundamental and quantitative price appreciation and pressure. Two, you must think more tactically today about how best to serve shareholder interests. If you’re behaving long-term – which seems conventionally wise – while nearly all the forces responsible for day-to-day equity prices in your trading activity act short-term, do not think it strange if share price and underlying value reality begin to diverge.
And on that wry note, we’ll stop for today! Look for the next Trading Alert at its regularly scheduled time. Also, monthly options expire tomorrow -- could be volatile.
Finally, NIRI National is fast approaching! Be sure to visit us at Booth 110 in Orlando.
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