Tree Shakes

[rimmy2000]

One of my alerts triggered earlier in the week for a share I had a kept a beady eye on. This piqued my interest somewhat especially as I began looking into the move.

I thought I'd write  quick piece about typical 'tree shake' activity' 

What is a treeshake:

‘where market makers shuffle a share price back on little or no volume after a sharp rise to induce profit takers to sell stock’ - as defined UK TRADERS BIBLE

Simply Business (SBIZ) is a relatively new listing, and one that I caught interest in at Mello Derby investor event, earlier on in the year.

What makes it interesting from our perspective is a lot of the shares are tightly held by management, Kenneth Davy (Chairman) holding around 40% of all shares, his wife another 12%, so it is evident this causes liquidity problems. The EMS is 1,500 shares which at today’s price is about £3k’s worth, so it can be hard to buy a good number of shares in any great volume, without paying through the nose.

The share has done well this year and moved steadily from 150p in April this year  to just under £2 through August.

On 7th September an alert triggered me to the move. I could see a substantial spike down intra-day, so I checked RNS news yet no announcement or news was forthcoming, the price was retreating, pushing 165p so lurched approx 10% down on the day from 180p, which apeared quite extreme.

It is also the case the price soon turned and recovered part of the ground it lost, almost as quick. This was all over in probably 30 minutes. A quick recovery. See chart 2 below for 30 minute bars. Those with even 10% stop loss in place would likely have their loss triggered and be exited only to see the price rapidly recover.

What is key to note here is that results were imminent: ie next day or two.  This did make me wonder if a) news had leaked, or b) if the results were widely expected to be good, so a move higher post-results was widely expected.

 

What is also key here is the move was not happening on large volumes of trades either. (img 3) On the day it occurred only 74k shares were traded. So not especially higher than preceeding days. But interestingly after interims, volumes were a lot higher 398k, 762k, so far, far ore interest in the company once the results were announced. Orders queued up perhaps.

Interim Results were inline with market expectations, but still punchy. Very quickly, the headlines with sales ^ 13%, EBITDA ^ 22%, adjusted PBT ^ 61% and EPS (adjusted) ^ 61.7%, Debt from -£1.6m to positive cash +£1.2m

So it is plain to see the results were impressive, not ordinary and no doubt the share is / was in demand. Volumes have been higher so perhaps the price was depressed to free up some shares and fill a larger orgder. Who knows.

Since the results the shares have continued their ascent to a new hight of 204p close 14th Sept. An easy gain to anyone with the conviction or agility to move in on the opportunity.

 

What to learn from this:

Tree shaakes do happen and have characteristics which can be checked versus a bad news sell-off/dumping of shares. We have loked at the typical signs to look for here, and I hope you find it useful. 

• is there and news release causing the price drop?
• is the volume excessive and/or large trades going though?
• is the price recovering rapidly (intraday?)
• Is the free float restricted by large director holdings or institutional tie up?
• is a news story / earnings release imminent?

Above all this there are opportunities if you are able and primed to act quick enough. I toyed with buying at 165p but refrained and now regretting it (usual story! ?)  But nevermind, it shows me the share is being pulled about and an opportunity will no doubt come again at some stage, I expect.

Comments and views, as always, welcomed.

 

[PandaFace]

Thanks for this rimmy. Certainly thought provoking in my opinion. It sort of shows how important liquidity is in these markets, and if I’m honest it kinda reiterated the issue with market makers. 

There have been a few posts on here recently regarding MMs and setting passive working orders on the share to look to sell, and this really backsthat sort of stuff up. Why set a stop loss when the MM can simply drop their bid offer spread to take out a few players. Correct me if I’m wrong but this seems a big ****- baggy? 

[rimmy2000]

12 hours ago, PandaFace said:

Thanks for this rimmy. Certainly thought provoking in my opinion. It sort of shows how important liquidity is in these markets, and if I’m honest it kinda reiterated the issue with market makers. 

There have been a few posts on here recently regarding MMs and setting passive working orders on the share to look to sell, and this really backsthat sort of stuff up. Why set a stop loss when the MM can simply drop their bid offer spread to take out a few players. Correct me if I’m wrong but this seems a big ****- baggy? 

yes, @PandaFace, if you set a stop, you have to be prepared for it to trigger. Nothing worse than seeing your stop triggered and then seeing the price revert, imo. Happened to me once with RGS, (now BLTG)

One way to get around this is to use mobile/push alerts so if the price drops, say 5% or 10% then you get an alert, then you can review early on and check if there is cause for concern, and either sell, ignore, adjust position etc. I tend to do this rather than use stops. But do use stops if I am being extra vigilant about cash control.

I think I'd be mighty peeved if I'd been in SBIZ, stopped out at 165 and two days later see the share above £2 upon results. 

[rimmy2000]

Coincidence.. Just Sayin'  ..!

Last 19-Sept sell off from 50ish pence

Fri 28-Sept, price plunges over 10% intraday, and then reverses all gains (see chart below)

Today..> https://news.sky.com/story/french-connection-chief-marks-to-call-time-on-high-street-career-11518926

news that owner and 42% share holder S Marks is looking to sell his stake.

Some views have suggested a sale at £1+

I hold these in a SIPP, btw. 

(Also look at the large and unusual volume spikes. Buying on the price weakness)

[phillo]

[rimmy2000]

Another example case in point here: 

• No news flow relating to the fall.
• All losses quickly reversed in the space of a single session.

I note other forums are referring to this as a shake too. And I note Robbie Burns (Naked Trader also has a position recently)

There's not much you can do in these situations, but a 10% drop will catch many stops and trigger sells, and force some smaller holders to panic sell their position (some may even regret and end up buying back their position)

There is a chance the lack of news flow means the market has caught on to something but it is also likely the move is a feign and if you are quick you can take advantage..? I bought in at 145.9p today, not a huge position, more out of curiosity and knowing something didn't smell right with the move. So opened essentially the bottom of the dip. And will hold until EOY most likely.

 

The wider volatility in the markets is causing a lot of the unrest, possibly part of the  issue, and that about 40% of these are held by institutions.