Often traders are asked to provide ‘colour’ or identify reasons why stocks are behaving idiosyncratically during a trading session and what the possible catalysts are. Newsflow is clearly one of the key elements behind daily performance but that doesn’t always offer a full quantifiable picture of intra-day flows or other potential investor sentiment driven reasons.
The combined analysis provided by OTAS Alerts, Microstructure and Core Summary offer users much more granularity and content than just simple commentary of corporate news headlines, as is demonstrated in Vodafone Group today.
The Alerts Overlay function on the Return chart above provides a sequenced timeline of events and abnormal behaviour in a stock’s microstructure.
Significantly for Vodafone, two exceptionally low Return alerts fired in red this morning highlighting large under-performance on both an absolute(R) and basket relative(B) basis. Our model indicates Vodafone shares do not typically encounter moves like this intraday and are highly irregular. Statistical outliers in performance such as these can be used to trade more effectively by identifying potential areas of support or inflection.
The most likely reason for the underperformance can be explained by the other alert flag on the return chart. At 8.07am an exceptionally large Dark/Offbook trade printed in 10.55m shares, it was OTC printed through BATS/CHI-X Offbook reporting exchange. The subsequent absolute and basket relative share price performance gives a simple indication on the direction of the trade and the impact of the risk unwind.
The clues to the motivation behind the trade may well lie in the Core Summary detail. For example, this will quickly inform users of the most recent newsflow and any upcoming Events. Vodafone provides a Sales Release in 2 days
The Liquidity tab embedded within our real-time Microstructure application provides traders with a range of key volume forecasts for the current trading session including estimates on important high ‘natural’ liquidity events like the closing auction. The forecasts update dynamically with reference to historic volume and current live market conditions and provide:-
- Pre-trade volume fragmentation analysis for modelling P.O.V and VWAP strategies
- Closing auction volume estimates for risk unwind to avoid carrying unwanted positions overnight
- Assessing liquidity, impact and feasibility of Market on Close orders.
The current Day Total forecast volume can be immediately compared to the recent 30 day historic mean average in the Microstructure charts and accompanying legend to establish whether the stock is expected to trade heavy or light relative to normal.
Traders using the OTAS Schedule component are also offered forecast participation rates over a range of short term trading periods in view of completing an order ahead of its optimal schedule. The key benefits here are:-
- Provides statistical evidence of potential impact on ‘must be completed’ order execution instructions.
- Allows traders to visualise the best strategy approach and evaluate participation rate from the time the order is received.
- Calculates your total order size as a percentage of remaining forecast volume still to trade on the day.
After a strong showing in H2 2016, Swatch shares are currently displaying a number of potentially negative fundamental, technical and sentiment risk indicator observables in OTAS.
With the crucial festive period over and the next financial update not until the 16th March, such warning signals may provide Swatch investors with early evidence to re-position in the shares…..
- Price Momentum fading – Having made back all its sector underperformance since early August 2016, Swatch’ relative performance is showing signs of fading again over the last week. Selling pressure is also evident in todays session, the OTAS Microstructure(right-hand chart) indicates the shares underperforming their basket on significantly higher than expected volume.
- Analyst EPS expectations continue to diverge from market price – Having shown a positive correlation historically, the OTAS EPS/Price chart shows a clear dislocation in EPS momentum and price. The shares currently trade at a 14% premium to the mean analyst price target in spite of ongoing negative earnings revisions.
- Only Insider selling – A number of transactions lately show company insiders selling into the rising share price. Timing wise, recent historical trades indicate well informed trading.
- Trading on peak valuation – Swatch shares have looked statistically expensive(2 Stan.Dev event) relative to sector peers since November, moreover, on 21x 12m Fwd P/E the shares are trading around their highest ever absolute P/E multiple. Similar comparable valuation extremes back in July 2007 subsequently saw the shares re-rate heavily and lose around -65% of their market value.
- High Implied Volatility – Vol markets indicate higher sector relative risk for Swatch shares compared to peers, a +/-14 move over the next 3 months. Recent option trading activity shows a larger bias for Puts.
- Short Interest – Low activity from Hedge Funds. Current free float on loan stands at around 12%(which is within the normal expected range compared to the last 2 years) and has contracted by around 1.1% in the last week.
- TIM Indicator – Contrary to the above observations, sell side brokers are generally positive on Swatch shares and are pushing them accordingly. The TIM indicator has seen its score* improve from 2 > 8 in the last week indicating bullish sentiment. Perhaps they don’t have OTAS as their evidence based early warning system !??
*1=Heavily Bearish(Underperform) – 10=Heavily Bullish(Outperform)