As our 12 Days of Trading campaign 2020 draws to a close, we know you like a festive finale. A global view of equity data allows us to zoom in on specific regions or individual markets. So, just like Santa, you can see everything. In another demonstration of how smart analytics can be powered by a global vault of data, we switched on the lights for the top 30 Nasdaq stocks since the beginning of September. This year’s Christmas tree is constructed with Nasdaq analytical branches.
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It’s been a turbulent year for the airlines, and just as the arrival of vaccines seemed to clear away some of the clouds, they’ve been hit by a blizzard of travel restrictions. In today’s 12 Days of Trading post we look at easyJet, a UK travel sector mid cap stock, as an example of how liquidity analysis can inform trading tactics during times of volatility. easyJet’s shares seemed to be on a smooth climb out just a few weeks ago before suffering a 13% price drop over the weekend, most of which has been recovered at the time of writing.
There may be several arguments about inclusion rules and timing and certainly when a stock with a Price /Earnings ratio of 1260 joins an index where the average P/E is 36 it is likely to cause waves rather than ripples. We knew it was going to be big…but this exceeded expectations. For a stock that trades huge volumes anyway the Tesla volumes on Friday were staggering. We can see on our first chart that $200bn traded on that one day. To put that in context, the biggest day in Europe since MiFIDII across ALL stocks was €132bn.
It would be remiss of us not to comment on some observations on market quality as a result of the macro surprises experienced this year. There was a lovely correlation between volatility/uncertainty and market quality during 2020. “Lovely” to behold, but unfortunately, expensive for many end investors. It would seem that the market is intended to be fair to all participants but some thrive more in choppy seas. We see the first evidence of this in Exhibit A today.
Having a team of super smart data scientists who use a consistent methodology on a well curated data set can bring enormous benefits when exploring new ideas. The deployment of new business logic to discover fresh insights can be applied historically as well as going forwards. This provides immediate context for those impatient to see if a trend is present.
Fund managers and traders following the S&P 500 Index face a challenge when they frantically throw out the junk to make way for the new kid on the block. The company that sells fewer than 1% of total vehicles globally finds itself with a valuation equal to the largest nine car manufacturers worldwide. “How can this be?” you may ask yourselves. Part of the answer in recent weeks is the announcement (on November 16th) that Tesla has at last qualified for inclusion in the S&P 500 from the close of business this Friday 18th December. This has put investors into a spin as passive traders have had to buy the stock to adjust their index weightings whilst reducing many of their other holdings to maintain balance. Meanwhile, active traders don’t know whether to take their profits, buy some more, or close their eyes, cross their fingers, spin around three times and hope the problem goes away when they blink back to life.
Our image of the 21st Century Santa depicts a carbon neutral delivery of presents from technology-driven sources, prompting the question: Who will be the winner from the festive shopping season this year? With an ever decreasing number of retailers surviving on the high street, everyone is looking online for stocking fillers and we can expect Amazon to continue to surf this wave. Some, like Apple, have built their success through customers’ ability to buy direct and there is plenty of evidence that the brand hasn’t lost any of its appeal.
A key topic in the market this year has been whether the trading day should begin later in the morning, a move endorsed by many as a way to concentrate liquidity, especially in the earlier part of the day. We can use the daily volume curves to measure whether the profile of available liquidity is changing over time and so as part of our 12 Days of Trading series we thought we would see if the extremes of 2020 have changed the picture.
As it’s nearly Christmas, it will soon be time to wrap up the volumes-related theme we have been following these first few episodes of the 12 Days of Trading. First though, let’s take a look at how the monsters of European trading fared in 2020. The first chart was inspired by looking at my Christmas tree lights, shortly after I hauled them out of the box under the stairs. It shows the ‘Big Five’ of the share trading world in Europe – SAP, Roche, Unilever, Nestle and Shell; between them they make up around 6% of daily traded value of the whole European equity market. With their large index and sector weightings, these blue chips are the mainstays of so many ETFs, passive trackers and mutual funds, and when their prices become volatile, they can deliver some really big days.
After our first post of this series where we highlighted three stocks with large price reversion before and after the close on 30th November, we had several enquiries asking if we have an easy way to identify these moves. When using data analytics to support trading decisions, one can try to gain an insight from a snapshot of information to simplify something complex or often, more valuably, to identify a trend or pattern. Either way it is like a game of I Spy.
