Market Outlook | That Was The Week That Was - W/e 26-Jul-2019

29th Jul '19 by Gromley

11 comments 1285 reads

Following on fromlast weeks summary of the Company Announcements that had the very largest impact on share-prices I have once again cast my net over the big announcements for the week ending 26-Jul-19.

The scale of the task of actually reading all of the announcements remains daunting, once again there were over 3,000 announcements - however again however again around of half of those do not directly relate to UK listed companies and more than half of the remainder are amongst those I classify as simple admin. That still leaves over 700 potentially significant announcements to review.

Similar to the previous week 107 of these announcements were associated with share price moves of greater than +/- 5% on the day.

As a follow on from last weeks comments I have added in Market Cap[*1] (and Industry) so we can take a view as to how far this is just volatile tiddlers presenting massive volatility. For the purposes of this table I have classified micro-caps as less than £30m market cap.

Share price movement / M. Cap	Micro	Larger	Total
> 20%	5	11	16
> 10-20%	9	20	29
>5-10%	21	41	62
Total > 5%	35	72	107

Based on this particular size cut off, it is in fact a fairly even mix between the minnows and larger companies so potentially things of interest to many here.

In truth though I should point out that ALL of the top 10 movers are either micro-caps or involved in “Software and IT services”, “Biotech” or “Oil and Gas” (which chimes heavily with my musings elsewhere. ) To get out of those particular casinos, you have to get down to number 13 on the list of biggest movers - IQE (LON:IQE) which has been far from a stable investment and arguably has a casino all of its own.

If I can get the data sourcing on this exercise slicker then I may move on to attempting a better precis of the findings, but that is not really my intent at this stage. So rather than waffle on further, as per last week’s summary I will just leave you with the list of the 47 stocks moving by more than +/10% on the day of an announcement as a source of possible further reading.

Once again,…

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Nick Ray

29th Jul '19

You've got a minor issue with your Mkt Cap column. Stocks which are >£1B are appearing as if that was their size in £m. (e.g. ABC or BUR.)

Very amused to read the RRL update: we were going to buy a pre school education business in China but we've changed our minds. Sounds like the oil and gas business just not challenging enough then!

matylda

Thanks for this Gromley.

Gromley

Thanks for spotting that Nick - you're quite right, my Billions had turned into Millions - hopefully that's not an investing omen.

All duly corrected now.

jonesj

Thank you Gromley. A very interesting and useful piece of work.

From my interpretation, this data seems to suggest it's a good idea to move quickly in response to major announcements. However, I would be wary of concluding too much from 2 weeks data.

Another topic that interests me is how you actually gather the data. ie Where from, how much is automated and if automated, what programming language do you use ?

I have had a google sheet with a live summary of several broker accounts on one page for about 8 years. I used to manually take a fixed record of this every month, but I have been recently experimenting with google script (Java Script) to take monthly and daily records. An interesting challenge, since my last significant coding was in BASIC & FORTRAN in the 1980s.

30th Jul '19

Hi jonesj,

From my interpretation, this data seems to suggest it's a good idea to move quickly in response to major announcements. However, I would be wary of concluding too much from 2 weeks data.

Whilst I think that might be true (assassins vs rabbits and all that) I not sure that the info here is necessarily point to that yet (even with the 2 week caveat) although some work I have being doing elsewhere is suggestive that maybe a lot of the negative statements may be predictable.

I do though have in mind the possibility of using the data I'm building up here to review what happens in the future to companies making these positive and negative announcements. In the meantime, if you have not seen it I can recommend Stocko's own Profit Warnings Survival Guide for some useful indications on the negative announcements (I do though have some very provisional contrary findings in certain market phases.)

Always happy to share thoughts and ideas on this kind of thing though. As I alluded to in the first report , this is a bit of a distraction to what I was actually looking to do with this data, but if there is value I'll be tempted to persist with it.

Another topic that interests me is how you actually gather the data. ie Where from, how much is automated and if automated, what programming language do you use ?

I try to multi-source as much of the data as possible and from 'public' (ie non-subscription) sites (although as I indicated in this piece I am using some Stocko data directly - in principle this should be simply Stocko's rendering of public data - but if I was posting this analysis outside of the Stocko paywall I would source it elsewhere).

As far as tools go, I am predominantly using 'PHP' and 'MYSQL' but that choice is largely driven by my desire to be able to access all of my tools remotely. I started off using Excel and MSAccess and they could probably still support everything I currently do.

If you've previously done BASIC and FORTRAN then I don't find the tools I currently use any more difficult (just different) so I don't think it would be insurmountable to do your own analysis. However it can be a big undertaking - I have gone this path because for me none of the freely available or (as far as I know) commercial tools answer all of the questions I want to answer. There are though a lot of quality tools out there, which I suspect provide what most people are looking for. More than happy though to bat around ideas, either via these posts or by Private Message.

dscollard

31st Jul '19

Herculean task reading that many RNS, would be interesting to correlate some keywords to price movement given the codification of profit warnings and outlook statements. I know Paul Scott has tried to decode these in percentage terms in the past.

Junior oilers and miners are inherently massively volatile as are biotechs and fledgling software companies. It is probably fairer not to exclude these sectors in their entirety but to sub segment based on market cap or intrinsic volatility. There is a good correlation between volatility and relative size over bigger sample size.

That said, and in the vein of market cap and volatility, Burford Capital (LON:BUR) price reversal in one day was pretty extraordinary in my view given its £3.3bn market cap : the intraday wasn't far off a 20% move . That has to signal a major change in sentiment and a very compelling sell signal.

Have done some work on price gaps over time: given that big price dislocations often arise from significant changes in the underlying fundamentals of the company or the macro of their markets these do tend to form significant turning points: either positive or negative. The adage of profit warnings coming in threes is a simplification of that. I've added a grab of Burford Capital (LON:BUR) as it gapped up on its stellar run and Superdry (LON:SDRY) as it splatted its way from grace. I looked at over 200 companies' gaps and splats and was satisfied on the statistical significance

FWIW, I track and post opening gaps and 'splats' each day (and tweet them at 08:05) . I sample at +/- 4% as my cut-off. These are normally the Yin to the RNS Yang and often provide trading opportunities given the increase in liquidity these events cause and the change in sentiment that occurs afterwards. They are also very often inflection points in a share's trajectory so form a useful basis from which to watch or take action.

Burford's Gaps-Up

Superdry's Splats Down

Howard Marx

"The adage of profit warnings coming in threes.."

Adages are pithy little sayings people put forward as a measure of their wisdom, and as a measure of our own we make noises of agreement. But the fact is that many of these proverbs are myths, just plain wrong!

For evidence of this look no further than Stockopedia's 'Profit Warning Survival Guide' page 26, which suggests that sequential profit warnings are rare, certainly not the norm:

5d4183b0ceadfprofit_warnings_NOT_in_thre

https://assets.stockopedia.com/ebooks/profit-warnings/published/profit-warnings.pdf

@ Howard Marx, nice qualification. I genuinely love it when data slaughters adages, I've not read the report but have now downloaded to address that: given its based on 245 small caps it's a good data set.

Not to devalue the point I was making, large price dislocations do tend to reoccur : I've looked across 200 stocks and found it to be valid - the underlying reasons may be varied and may not be multiple profit warnings.

Rusty2

"That said, and in the vein of market cap and volatility, Burford Capital (LON:BUR) price reversal in one day was pretty extraordinary in my view given its £3.3bn market cap : the intraday wasn't far off a 20% move . That has to signal a major change in sentiment and a very compelling sell signal."

It was strange as the H1 results were much better than the forecasts. Some speculation about the share price fall is to do with Woodford, who is a major share holder off loading some of his shares.

I will never get any proper work done if you folks don't stop making interesting observations!!

Herculean task reading that many RNS

It is and I don't.

would be interesting to correlate some keywords to price movement given the codification of profit warnings and outlook statements.

That is something I have been looking at, but it's quite hard work and spends a lot of time "on the back-burner" as I outlined in the first post my efforts on this front have thus far evolved to a level of Artificial Stupidity.

This is why at this stage I am effectively using the hive mind that is "the market" to tell me whether a given RNS is "good" or "bad".

The Profit Warnings Survival Guide [PWSG] did however I think rely on the words of the RNS to identify profits warnings (It's not clear though on the methodology used nor how manually intensive that was).

This leads me on to Howard's point about profit warnings not coming in three's.

I am quite comfortable with the idea that they do not come in three's ; but on reflection I find the idea that 63% of "profits warnings" are one-off instances a bit more challenging; both in terms of my own findings (I concur with dscollard here that "large price dislocations do tend to reoccur") and with the view from the PWSG that stocks tend to underperform for at least a year after a PW (during which time they will typically update on trading at least three times).

I would speculate the answer here is the difference between "profit warnings" (as defined by the managements words) and "results/trading statements which the market does not like".

Entirely off the top of my head, but I think we can possibly categorise the statements following a Profits Warning into 4 (somewhat arbitrary) groups.

1. "Things have got worse" (These are the 37% of 2nd time PWs)

2. "Things are still bad (but no worse)- we did tell you this" - Not a PW, but the shareprice will likely still go down.

3. "Things are starting to get better, but these things take time and there are still challenges ahead" - Definitely not a PW, but again there is a chance the shareprice will go down further or may start to stabilise.

4. "Yay - we fixed it. All in the garden is rosy again".

I have no evidence for this whatsoever at this stage, but I suspect "option 4" occurring before an previous "option 2 or 3" announcement is comparatively rare.

It is not something I have the mental bandwidth for in near term, but I am tempted to build an analysis of whether "Statements the market does not like" come in Threes (or some other multiple.)

6th Aug '19

today's further 20% leg down does validate the sell signal. The chart is interesting as the current price is pretty much the target for a head and shoulders reversal off the March 2019 double top at £20.5 (neckline at £15.9 so minus £4.6 gives a reversal target of £11.3)

That Was The Week That Was - w/e 26-Jul-2019

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Gromley

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