By Dillon Yeh
Economics Undergraduate Student
On the 2nd of November 2016, I noticed some unusual behavior. Not of a person, but of a stock. Ionis Pharmaceuticals Incorporation, trading under the ticker NYSE:IONS, is a healthcare firm specializing in antisense drug development to treat genetic disorders and spinal muscular atrophy (SMA). Interestingly, the company was previously named ISIS Pharmaceuticals until December 2015, when it changed its name and trading ticker for very obvious reasons. Nonetheless, on that November day, something peculiar happened.
Ionis opened at $26.00 (£20.90), fluctuating wildly between a high and low of $27.23 (£21.90) and $24.58 (£19.70) respectively, before settling for a close at $27.00 (£21.70). The fact that it had opened and closed at perfect integers was unusual in itself, with my transactions often including quarter and half pennies in execution. The market makers were for some reason granting beautifully whole dollar values. Unusual, but not obscene.
But following lunch and the +10 percent spasm from the open, the share price suddenly stuck at $27.00 give take while volume was double the average amount. Given there was twice the number of shares exchanging hands, you would expect there to be some sort of movement in prices to the upside or downside. If, for example, there was an insane influx of buying and selling of St Andrews black tie ball ticket, you would expect there to be variations in prices as sellers undercut each others while buyers raise bids competitively.
But alas, for Ionis that afternoon, shares stayed at $27.00 and closed at $27.00.
Fine, whatever. Why does this deserve to become the subject of an article? Because, this behavior continued on for the next two days. On the 3rd of November, Ionis opened at $27.00, had a daily high and low of $27.51 (£22.10) and $26.86 (£21.60), and closed at $27.00. On the 4th of November, Ionis opened at $27.00, had a daily high and low of $27.70 (£22.20) and $26.60 (£21.40), and closed at $27.13 (£21.80) . Like the afternoon of the 2nd, the stock was flat lining perfectly for two days on the $27.00 level.
That is extremely unusual behavior, so rare in fact that I have never seen it in six years of trading unless the stock is completely illiquid and has no volume or has been subject to a buyout with no arbitrage premium. But none of these conditions applied to Ionis. Indeed, the company was almost too liquid, with both day’s trading volumes approximately 50 percent higher than the normal trend of the previous two weeks running up. And the company had definitely not been bought out. So what it came down to was that somewhere out there, there were people who knew something about this company and were making moves. And thus the question became: is it going to be for the better or worse?
The answer came in the minute, but noticeable, spikes in prices. For the most part, those someones out there were making constant and consistently sized purchase orders on the market. The buy and sell were completely balanced for the most part, the share price in harmonious suspense. However, every now and then, massive orders, blocks valued in the millions, would be made with the prices rising a percent in seconds before quickly reverting to the $27.00 level it had been sustaining. These were obvious signs of slippage, meaning that someone was purchasing so many shares out there that they were drying out the stock’s liquidity. Had these market participants been selling the shares, the spikes would have been thrown to the downside. Why would someone be accumulating extraordinary quantities of Ionis? There were no company press announcement or earning reports in the foreseeable short-term, but these market participants were nonetheless buying in anticipation of something. Speculating and relying on the assumption of asymmetric information, I purchased some shares too at $27.00.
Markets closed for the weekend, with the days duly spent by biting my finger nails as I contemplated whether I had just made a stupid trade based off of a spurious hunch. On Monday morning, the 7th of November, Ionis opened at $33.61 (£27.00), a jump of +23 percent from Friday’s close. Their trial drug Spinraza, which treated SMA and developed in partnership with biotech giant Biogen, had met its primary endpoint, showing significant improvement to the motor function of the sample child patients afflicted. The markets ate it up, rewarding the company with the significant price jump. I sold out of my position, making a pretty penny.
The takeaway of this experience was that capital flow into particular stocks is an important indicator when divergent of price movements. In this case, the Relative Strength Indicator (RSI) remained flat while the Money Flow Indicator (MFI) increased dramatically. It was possible to see and replicate the trades that the institutions were making. The trade no longer became about the company itself, as trading on fundamentals is arguably dead at our current valuation levels, but rather trading on the market and its participants.
Featured image by Images Money/Flickr.