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If the data be true, the massive global arbitrage that's been dominating trading since early January lost some steam as February concluded.
The Wall Street Journal today noted that the Dow swung 200 or more points on 29 of 43 Dow trading days thus far in 2008. The Journal attributed these gyrations to "new information" driving investor sentiment.
We simply don't believe that. Of course, what we believe matters less than the rent-a-crowd behind a political rally tapeline. But the reason we write these Market Structure Maps is to help you retain relevance in the IR chair. And here are the facts: In markets typified by liquidity so fragmented that the SEC just voted unanimously to remove regulatory impediments to the rapid introduction of ETFs, the costs to the buyside for changing portfolio makeup to fit the latest CNN news headline would evaporate the opportunity for return like so much drool on a glowing grill.
It doesn't happen, people. But what does is that Primes run more aggressive structured trading products and algorithms during periods of market inefficiency to help their clients leverage yield from short-term changes (because they're in the business of accessing liquidity, unlike the buyside). We observed a decline in that activity as February folded the trading card table and picked up its chips.
We can be wrong, of course, if behavior morphs and the way we map data doesn't keep pace. But it certainly appears to us that the buyside assumed more responsibility for trading equities directly themselves as February concluded. It came mostly at the expense of speculators and research-centric order flow—perhaps because these elements of the market were busy furnishing liquidity while torrid short-term trading pervaded markets the past several weeks. So that means somebody in the regional broker-dealer or research-and-trading group is likely to go out of business soon.
We also think that program traders began resetting strategies on the afternoon of Tuesday March 4th.
IROs, applying large lessons locally: If you know your market structure—what's dictating your stock price, in essence—you'll be better able to set internal expectations about stock performance and more equipped to pick your outreach priorities and get results from them.
Welcome to the jungle!
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