When Brokers Feint Left

Category: CM Commentary & Opinion, Tim Quast
Source: Tim Quast, Managing Director, ModernNetworks IR LLC

Looking at equity-market activity last week during Part One of monthly options expirations (we don’t finish this cycle till tomorrow, May 20) reminded us of a cowboy saying that “timing has a lot to do with the outcome of a rain dance.”   

In other words, predicting future events accurately is mostly a function of luck. We could give you ten solid reasons why stocks will settle again into a prolonged slide. But the way money behaves now, who knows?  Here’s a fact, however: volumes at big wirehouses we treat as “Prime brokers” last week were the highest since right after March expirations. 

Past experience (not the mark of future success – but you always take the points, so to speak) says they were on the other side of more trades for institutional clients.  Money sources of all shades have lately been riding intraday volatility thermals like Evil Knievel in an ultralight.  But here while options expire, Primes can help their clients feint left and go right, leading pundits to see market enthusiasm that doesn’t exist, as broker-dealers bid up prices, absorb shares from clients, and make offsetting derivatives trades to preserve profits.  Never go in against a Sicilian when death is on the line, and never believe a 250-point uptick during options expirations.  

Still, see the note above about the outcome of a rain dance.  

Another fact – two in a row today, a dangerous precedent – is that people who know more than me are graciously lending knowledge next month at NIRI National (see link below) to help us IR practitioners, whose world has gone topsy-turvy since last September, get a better grip on what’s behind price and volume.  Find a way to be there. Tell your CFO that if he or she wants to look cool talking to the Board about share performance going forward, they’ll find the funds to finance your trip.  

I’ll plug the panel I’m moderating Monday there, called “How the Buyside and Sellside Trade Your Stock Today.”  The folks on it represent the cutting edge of capital-markets insight.  Bill O’Brien is CEO of Direct Edge, which is vexing the major exchanges with its growing market share and which just filed to operate two stock exchanges. Anthony Corso of trading technology leader Rosenblatt Securities is among the market’s top experts on dark pools. Joe Saluzzi’s agency institutional brokerage Themis Trading has shined incomparable light on how algorithmic trading works today.  This is the stuff of which the contemporary IR career is made.  If we want to speak authoritatively on how our stocks trade, it’s the chance of the year to learn. 

See you next month (ModernIR is at booth 204)!  Now, if you’ll excuse me, there’s a rain dance starting over there....   

Have a good week,

Tim Quast

Managing Director

ModernNetworks IR LLC

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