shady trading, page-2

It is shadiness, and a tad strange with such an illiquid stock.

Most punters think such action is algos attempting to accumulate and covering their tracks with the lower bid hit. Maybe, but I can say with absolute certainty that it was not an algo accumulating today.

I think that the algos are not actually building long or short positions when you see this action. What they are trying to do is create a reference price as low as possible in anticipation of a future event/announcement. By doing so they create a small loss now (by trading with themselves) which can be more than covered by trading the actual event. Effectively they give themselves more room to trade the event, if and when it comes. Importantly, they have nil risk exposure to the outcome or timing of the event (high capital efficiency).

When a positive event/ann is released the algo is all over the price action creating the illusion of substantial demand. This draws in greater liquidity which they can game. The algo action pushes the price beyond what "normal" demand would have led to.

I may be wrong in my views but I have seen strongly supportive examples of such price action in AGS and ARU before major announcements this year. (I hold neither)

In the case of RNC, we are probably close to a market update regarding the conditions of sale which should have an upside bias. If so, the algo will try to take their share of the move after the open. If not, the algo has risked nothing if the share price falls.

My thoughts on the matter could be rubbish and I am open to more coherent views on algo trading of smaller cap stocks.

Algo action aside, IMO RNC represents a great risk v reward trade.