Saturday – 9.09 am

I thought members might appreciate some further thoughts this morning after another rough day yesterday.

When we left off onthe Live Blog early evening Thursday we’d had the bad day we were expecting – but it wasn’t as bad as it could have been and things were settling down. 

It was starting to look a bit more like a market where you could trade. Spreads were tightening, more sell prices (though not enough yet) were getting on the board. 

From there, it seemed logical to think things should continue settling down. And that we might see a recovery over the weeks to come, and even a little joy this weekend and next as some dividend winners came through. 

Maybe that will still be the case. But based on yesterday’s red numbers it feels further away not closer.

In theory you’ve got a market where prices are lower than they should be versus the yields/dividends on offer. And we’ve got football back after the International Break which should be a chance to refocus on that rather than market mechanics. 

So with that being the case – the missing ingredient was some stability and tighter spreads which could lead to a gradual return to more sensible trading. 

We certainly did not see that yesterday. Which leaves even the most experienced of traders puzzling over why.

With these things there is rarely just one reason but rather a complicated mix of them – different forces that are pushing against each other. And something which plays a major role in sentiment is the market mechanics – what the platform is telling us is happening.

One thing that we know goes on is market manipulation. And this works both ways. There is an obvious way to push up the Average Offer Price as discussed on Thursday – just make unrealistically high offers to keep the Average Offer Price high.

FI made this worse by caving in to social media pressure to actually increase the ceiling on this from 50p – I thought they should do the exact opposite to give greater confidence in the integrity of Average Prices.

And the manipulators also put downward pressure on the price – and I strongly suspect this is a big factor in at least kicking off what we saw yesterday.

Some of this is deliberate – an attempt to cause crashes to enable cheap buys. Whilst spreads remain wide – this can easily be done by Offering low – causing a Blue Button price drop and a panic – pushing people into accepting lower and lower offers on the Red Button. 

And it costs you nothing to do – if someone matches that know you can buy back even cheaper. These manipulators often combined that with negative social media campaigns to cause further panic.

And they will currently find fertile ground for that behaviour. Trader confidence was on the deck already. And people were hoping for Thursday to be the turning point – so to see further drops on Friday? That can shatter the thin confidence that remains even for usually level headed individuals. 

Some of this is opportunistic – traders taking what they can get. They won’t consider themselves manipulators really. But if you can push a price down and buy more cheaper then lots of people will. People are greedy and you can’t even expect any different – people are here to make money. 

And many work under the belief, which may or may not be a myth (I suspect it is), that you might get “lucky” if you offer at the Blue Button price and then you can buy back cheaper. This kind of thing is standard – you can’t really expect traders to do anything different than work in what appears to be in their own interest – even if they are actually hurting themselves.

These two factors push prices down and it is probably what kicks things off. 

Then you have the people whose confidence was wavering – and they are pushed into selling at rock bottom by another day of drops. This gives the manipulators and opportunists exactly what they want. 

And that cycle continues – spiralling the Blue Button price further down.

What these guys have to bear in mind is that there is only so much people can take. A good manipulator should nibble at the edges – if he goes too far he can poison his own well. They are a bit like a virus. A good virus is like the common cold – inconvenient but not lethal. It never kills it’s host because it will kill itself too. 

A bad virus rips through people hard but quickly burns itself out. I think they need to be a bit careful here and think about the consequences with confidence so low.  

Pushing against all that downward pressure to drive prices up we have those who are taking this as an opportunity to clean up. They do exist, and where you can find a rock bottom bid I’m comfortable with that personally.

But this sort of buying is a weak upwards force – buyers are simply able to pay extremely low prices and there is literally no reason to pay anymore than you have to.

So this creates some very powerful forces pushing down and only a weak one pushing up. 

Then we have to look at the market mechanics. The Blue Button price is dropping – but as we have discussed a lot recently – this represents only the cheapest 900 shares. It’s still incredibly sensitive often to just one even mid size trader. 

The Blue Button can bounce down and up very quickly. Just a handful of people can do that – it doesn’t necessarily show that every holders confidence in that player has evaporated – just that a small number of holders are willing to sell cheaply. 

They can be manipulators, opportunists or people who have just lost confidence and want out – which may make sense for them if they are really struggling with the stress of all this. I genuinely sympathise with that because things really do feel bleak.

I’ve long said this should be more than just 900 shares, which does have it’s own problems in terms of creating situations where the sticker price isn’t the real price. But currently – it is just too sensitive and prone to causing very volatile movements. This issue needs resolving.

Then we have the Average Offer Price – which is supposed to be the sense check on where sentiment really is at. 

But as mentioned above – this can be gamed very easily too. It’s likely to be higher than collective opinion really believes it should be. Stubborn holders and manipulators will be determined to keep their players Average price high for obviously self interested reasons. 

Blue Button and Average Offer Price are therefore showing us two extremes – the collective trader view on what the price should be is going to be found somewhere in the middle of those two numbers. And those prices feel a lot more sensible given where we are. 

That would peg Neymar and Sancho at around £7 and Bruno around that area too. Kimmich £5 or so. These prices seem sensible to me given the current dividend structure, and are below what I would consider true value in terms of dividend returns. 

So. That’s my best explanation as to what we saw yesterday. I don’t have all the answers – these are new experiences for all of us in this market. We do have experience from crashes/booms in other markets to draw on. But FI is different and novel – really more of a football betting game with market elements than a real market right now.

Next we have to consider what happens next and then ultimately, what can we actually do about it?

Probably, if you want to step back and really consider things with cold logic – one day hasn’t really changed the picture. Thursday was grim. Friday was grim. But eventually the bottom gets found in a market. Stability returns. Football carries on. Dividends drop into portfolios. Slowly, over weeks and months, things start to look more sensible again. Still probably the most likely outcome in my view. 

But what if it doesn’t? Confidence is shattered. People are angry and upset. Genuinely stressed. And it’s not just “weak hands” or fools who are feeling like this by now. Even those of us with ice in their veins won’t want to be seeing much more of this. 

Those trying to drive prices down (who exist in every market it isn’t unique to FI) are finding no shortage of people ready to break and sell cheap. 

Can FI take it if things don’t turn around? Are they strong enough? Probably for a while, at least a few months yes. But that generous dividends offer was based on market prices far higher – I wonder whether they would make such an offer today. 

It’s hard to say – none of us have access to the books. They are, in the main, making some positive changes but they are often coming later than they need to. And the “magic bullet” of liquidity providers still feels someway off. 

I don’t think there is a clear answer. My personal view is the same as it was on Thursday – I think it will settle over the coming weeks and months. And the heavy upcoming fixture schedule is at least something to look forward to.

Traders have really short term memories – for all the current talk on social media – we know for most people all we will be forgiven and forgotten after a few weeks of solid green. We’ve seen it before many times just on smaller scales.

Yet, for those who are in financial difficulty in a year that has been bleak on and off FI, maybe it does make sense to take what you can. Or if it’s really impacting your mental health and it’s causing you problems – there are good reasons to call it a day in that situation. Not just for the mental health reasons – but it’s impossible to trade effectively when you are under this kind of pressure in my view. You can easily be bounced into poor/rash decisions.

Then there is a practicality point. Often in markets – there is little you can do after the crash has hit and the damage has been done. Options are very limited and there are no attractive choices to make. You either keep holding, hoping things will turn around. You keep trading, nibbling at the edges of refreshing players for IPD and maybe some cheaper prices to try to cheer yourself up. Both of which come at the risk of continued drops with potentially a massive upside if things recover.

Or you cash out, taking a massive hit in a total buyers market where to sell you have to do so at absolute rock bottom. You keep a portion of what you have and run but at the cost of any chance of benefiting from a recovery.

Really no one size fits all answer. It’s bleak. I personally am not swayed by just one day by market mechanics that are really only reflecting the actions of a minority. But I can understand why even usually steadfast traders are finding themselves very short on confidence right now.

I’ll be back as usual covering the weekend’s action, which will start a little later than usual early Monday this week. And if you have any further questions I’ll run a State of the Market on Tuesday too.

All the best,

FIT.