Market Structure Map

Helping IROs understand short-term market structure to maintain long-term peace of mind.

May 21-25 – Broad, deep, ready for rebalancing

NOTE: We’re one day late thanks to Monday’s holiday, which delays data availability. Also, the Trading Alert will take a break next week while we’re at NIRI National in Orlando.

For the first time that we can recall, every member of this week’s Top 25 Issues report traded every single issue in the data sample. What does that mean? For one, portfolios are really diversified. For another, month-end cleanup began Friday the 25th with institutions beginning to boost trading activity to cut losses or lock profits (employing algorithms most times).

Once again and for the second time in a month, we observed a sweeping modification to a Goldman Sachs strategy, most of it occurring on May 25. We've postulated that Goldman may have taken out the equivalent of public-equities insurance policies to offset potential private-equity risks. Perhaps those policies expire tomorrow. You may not see the activity simply be looking for Goldman, or GSCO. They’re quite creative about masking their activity by mixing up order flow and dispensing it across a variety of desks, even routing order flow away. Accurate order-flow categorization is pretty key, we’ve learned.

Anyway, Goldman spurred arbitrage, as evidenced by increased activity on speculative desks and at high-frequency traders of the hedge-fund ilk. Always fascinating to see these things at work – and it’s important to know how they affect your trading activity because maybe you can time your institutional outreach in a fashion that coincides with market structure best suited for investors of a particular orientation. Never hurts to do your best to get good returns on invested effort, IROs.

A last consideration: We’ll see the Russell rebalances hitting near the end of June. Depending on where you are versus your and other members' market capitalization last year, you might make calls around it in case liquidity ripples offer a door for shuffling in some desirable shareholders (or the inverse, and vice versa). Hope former trader David Neubert won’t mind if I quote his blog from June 30, 2006 for perspective:

“When I was the responsible for program trading at Morgan Stanley (1996-2001) I did this annual index reconstitution trade with billions of dollars working with the largest pension and index funds in the world. The trade was exciting and huge. Today, I trade for myself using retail portfolio trading software and brokerage accounts instead of the highest-end software and models designed by some of the best minds on Wall Street. Even still I was able to take advantage of the machinations of index funds…to trade into both long term fundamental and speculative positions.”

Good to know about these events and their impact (we can help you with that). These days, the best IROs make use of all available tools in the IR arsenal. See you at NIRI!

 

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Market Structure Map

Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.

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