A few days ago I wrote an article discussing the FINRA Market Maker Short Sale data that H. T. Love was kind enough to share with me. I spent the weekend slicing and dicing with the data trying to get a better feel for when various selling stockholders influenced the market and what their relative impact was. My working thesis is that shares held by Blackrock, Manatuck Hill and one-quarter of the 2009 private placement purchasers are in strong hands while the following stockholders or stockholder classes have been pressuring the market over the last 21 months.
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Working from the FINRA data, I calculated the number of shares that flowed into the market during each quarter starting with Q2-2010. Then I allocated the selling volume to Special Situations and Quercus based on their SEC reports. All sales that couldn't be specifically allocated ended up in the unknown column. The only number that's an outright guess, rather than documented fact, is Q4-2011 sales by Special Situations, which I've highlighted in red.
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The relevance of this kind of analysis is that it offers fascinating insight into when the selling pressure was exerted and by whom. Reporting stockholders like Quercus and, to a lesser extent Special Situations, draw the bulk of the attention (and blame) because they report their activities to the SEC. In reality, the substantial bulk of the pressure came from invisible hands that were in there pushing and shoving around the exit along with the big boys. Like I observed last week, it's been like a fire drill in a sumo training stable.
The importance of this kind of analysis is that it shows why the selling pressures of the past are not likely to be repeated in the future. I was surprised to see that the heaviest selling activity occurred during the Q1-2011 run up and the Q2-2011 run down. In both intervals the heavy hands weren't Quercus and Special Situations. Instead the bulk of the shares that flowed into the market came from the invisible hands.
On a go forward basis I see the market as more supply constrained. The remaining shares that are potentially available for sale break down as follows:
|The Quercus Trust||2,530,851|
|Strong 2009 Investors||3,600,000|
Quercus has been very consistent in its selling and I think we can plan on it accounting for 10% of trading volume until the last of its shares are sold. I believe the other potential sellers are more likely to hold, particularly if the price continues to firm. That belief and $5 will buy you a cup of coffee at Starbucks. Since total trading volume in 2011 was 77.7 million shares, as compared with 22 million shares in 2010, the market must find equilibrium soon.