19th December 2017 – A shorting armageddon ?

Alfacomp

19 December 2017

Update

I have received an email from a PI explaining that the 500K trade at 8.70p (12:50:59) was actually their BUY. But how on earth did they manage to buy at this price ?

The answer is that the trade was a initially a set up before the noon as a limit buy of 500K at 8.40p – half of this was filled at this price, but following the price rises after 11:45 the second half could only be completed at 9.00p. Hey Presto a 500K trade at 8.70p ‘timed’ at least an hour after the first shares from this block were picked up. A fantastically helpful disclosure that not only clearly revises the nett MMs trading position for the day up by +1M but may also have been the trigger that lay behind Tuesday’s sudden price appreciation.

This now leaves the Market Makers with a hole in their daybooks of some 5M shares – that is 5M shares that they appear to have sold, but not yet bought. I am still trying to work out if the injection of new shares via warrants, to close a short, also allows the MMs to close their hole. On first inspection it would seem not – the shorters would normally need to Buy shares from the Market Makers to close their short, but if they are also the warrant holders then would simply be handed the warranted shares by the company. They would not need to trade with the MMs to get the warranted shares. If the warrant holders are held by another party then they might have to sell the shares to the Market Makers, and then MMs then on to the shorters, but as you can see this does nothing to improve the MMs nett trade position … the story continues.

 

Tuesday the 19th December would appear to be exactly 20 trading days after the 20th November, when the Vametco Q3 production results were published. These were deemed to be slightly underwhelming due to an unexpected shutdown of one of the processing kilns for repairs. The result was a clear new cycle of shorting that was started on the 20th Nov – see this article and the summary of the week of 20th-24th Nov.

Since the 30th of November, when the Yellow Dragon buyout plan was announced the share price has repeatedly been kept low, even in the face of a regular excess of Buys over Sells being many hundreds of thousands of shares.  Today at 11.30 that all changed – suddenly the share price was let go and it appreciated by some 12% in the space of an hour. This sudden SP movement also released a strong pulse of buying which drove the nett trading position to above 700,000 at just past noon. Even a (delayed reported) sell of 500K at 12:50 did not knock back the elevated share price and buying continued strongly for the rest of the afternoon.

Tomorrow after all is the vote on the Yellow Dragon buyout, with expected readmission the next day, and BMN then holding 59.1% of Vametco, rather than the 26.6% that we have had so far. Is this sufficient to explain this sudden change in behaviour – unless we see a delayed buy of some 1M+ I think not.

On with the story – by the end of trading the nett trading position had reached some 1.5M more Buys than Sells – the highest excess since the 30th November when it reached almost 2M. Then the fun started as more delayed trades trickled out:

First a pair of identical 1.75M trades after hours, sold close to the bottom of the Bid, then the 500K Sell previously mentioned, and then a couple more buys amounting to almost another 400K shares. PIs comment that there are still more buys yet to be reported.

How do we make sense of all this? How can we explain why the Market Makers suddenly decided to raise the SP so dramatically ? What are these 1.75M share trades ? What is the current position of both the Market Makers and the shorters who we hypothesize to have arrived on the 20th Nov ?

(The graph above does not include in the nett trade plot, the questionable end of day 750K trade on the 14th Dec or the 2×1.75M trades announced today).

Last things first – the 20th November shorters may have not all bailed out on the 30th of November when the Yellow Dragon deal was announced. Any that did not and stayed around until today would have been caught in the trap set today by the Market Makers.

Why did the Market Makers set a trap – after all it would appear that they too had accumulated a short position amounting to some 3M shares before the start of today. We are told there is no honour amongst thieves but why, after dancing to the shorter’s tune for so long why would they suddenly change at 11:30 today? Is it conceivable that the exercising of warrants as the final act of a shorting drama, and sudden creation of 3-4M new shares, also somehow fill the Market Maker’s current 4M share hole ? If so then the writing for the shorters was evidently on the MMs wall as early as the 30th of November.

At this point there may be more questions than answers – Warrant exercise notices in the next few days, much like the one received on the 19th of November following the 10th Nov short, may support this interpretation. Today you may have witnessed the last of the fat shorter singing.

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