Market Structure, Month-end Trading and Technical Corrections

With Thanksgiving leftovers hopefully gone and the holiday season upon us, here are a couple investor relations tips to help finish out the year the best we can.

But first, we’ll answer a question on many of your minds: "Did order flow last week indicate that real money was back fueling stocks?"

The short answer is no. The long answer is also no. Liquidity providers, who furnish shares to market centers instead of taking them away were almost unchanged in the ranks. The exception was the 29th and 30th, when retail and time-slice and alternative platforms were way up. This indicated that month-end activity trumped any wish to pick up bargains. In English, this means that a frantic search for liquidity to protect against downside risks reasserted itself on 11/29-30. Buying was selective and specific.

Hang on…this is important stuff for investor relations professionals. Two investor relations lessons for technical market corrections and the ends of months in algorithmically driven markets:

#1. Try not to schedule events or announce news on the last day or two of trading in a month, unless you’re announcing catalyst news, like highly accretive M&A or a major contract. Why? Because you are contending with adjustments to risk-management, transition-management in portfolios, incomplete tweaks to forward buyside and sellside strategies and the possibility that any economic or geopolitical news will seriously throw all the above out of kilter. Why risk that? Wait a few days whenever you can.

#2. If technical corrections coincide with catalysts, reach out aggressively to the buyside. The silver lining of situations like last week’s where the Dow crossed the 10% down threshold and came back up on what the technicians call a "double bottom" (also a description for the result of too much food at Thanksgiving) is that ups and downs are mostly algorithmic. So, say you have big catalyst-style news. Fund managers look good capitalizing on opportunities, but look bad if they go against the tape. So make your self a "special situation" by standing out when the tape goes south. But don’t try this if you have no basis for it. You’ll waste your time on the road.

IROs, I hear you: "Tim, we don’t want to worry about this stuff. We just want to run our IR programs." Well, this Friday, December 7 marks a crucial milestone in modern American history when Americans were saying the same thing about geopolitics. No, we are absolutely not saying market structure is like Pearl Harbor! But we’re suggesting that sometimes you’ve just got to deal with it.

Tim Quast is a fifteen-year Investor Relations veteran and founder and managing director of ModernIR.com, which parses and categorizes over a half-billion shares per week with its trading intelligence system, Equity Analysis. See how our customers are utilizing Equity Analysis to learn about program trading and investor relations. For more information, please visit: What is market structure?.