A great example of how analysing and alerting traders to changes in the microstructure liquidity skew can give edge on determining direction and intra-day price performance.
- Telecom Italia underperformed its basket of peers from the open, down by 80bps at its lows.
- 15 minute moving average liquidity skew was pretty evenly matched from the open but saw a large build in passive bid side liquidity at the lows just after 10am – ALERT
- With transacted volume well below normal, it is clear the buyers were struggling for liquidity yet unwittingly laid a visible footprint in the market.
- Having shown their intent to the market, the shares then begin to rally hard, c250bps, and begin to outperform the peer basket. Note that volume also picks up considerably.
- Towards the highs the liquidity skew changes completely and offer side liquidity is dominant (note the buyers have completely fallen away) – ALERT
- The days highs are seen shortly afterwards and sellers can be seen posting further outsized sell orders which drive the shares back towards the basket. – ALERT