Very high volume buying continues with healthy but limited...

Very high volume buying continues with healthy but limited pullback!

That was a great day's trading today - set new highs and healthy correction all in one day!

Let's face it, most of us aren't anywhere close to selling, so it is much more important to build a solid base so the price can keep moving up longer term.

Why was it so good?
1. The very aggressive opening left a huge gap. The opening saw 238,221 shares trade at $A2.39. That left an 11c gap on yesterday's close and it kept blasting higher up to $A2.44, which was the highest level since 2 Oct 2018. The subsequent fall closed the gap. If it hadn't closed up today, it would've happened days or weeks later and would've felt much more painful. It's good to get it over with in a day.

2. The previous high didn't hold. Oct

2nd ​

2018 was an unsustainable spike high day, after the previous day's 20c rise in Melbourne while Sydney was closed for the October 1st public holiday) - it was also an 18 month high going back to the previous high in May 2017. It was a crazy day, with over 7m shares traded and it signalled the end of the rise - it actually closed below the previous day's low under ferocious selling - falling from the high of $2.47 to just under $2 and then closed at $2. That was a "one-day reversal" (higher high, lower low and a close below the previous day's low) which indicates a completion of an up-move and the start of a new move down. Today's move was very different - it didn't see the same level of ferocious selling and we closed today above yesterday's low - so today was NOT a one-day reversal.

3. Share prices never move in a straight line (as we all know) - but there is always a pattern of profit taking. It is just a function of human behaviour, and is a great example of why markets and price moves in the short-term aren't anywhere near rational. As I've noted before, that profit taking is always in proportion to the previous move up - people can afford to sell it down harder but still make a profit. So I view today's move as a healthy profit taking exercise and no indication of Iran vs Iraq, bombs, plane crashes etc. The often-seen 61.8% retracement can be seen today - the recent minor pullback point was $2.05, then today's high was $2.44 (up 39c - see purple line below) - so a pullback to today's low of $2.20 (down 24c from the high - see red line below) was 61.5% of the 39c move up. These are all very short-term moves and somewhat arbitrary retracement targets, however profit-taking moves are also usually short-term and somewhat arbitrary:



4. The ASX200 index only finished down 9 points, or 0.1% - basically shrugging off the Iran/Iraq retaliation for The Goose-In-Chief's murder of an Iranian General. No American casualties. No reason to think that ongoing problems in the Middle-East will have any effect on MSB's long-term cash flows.

5. In answer to @col69, no I still don't think it is likely that we'll enter the ASX200 in the March rebalance. The calculation is done on the average daily market cap up for the 6 months up til the end of Feb. I think we are just too far into the 6 month period to be able to get the average price for the whole 6 months up to the required level of $2.23 - and even then we have to take moves of other similar sized stocks into account, and we need stocks to drop below number 220 to leave a gap for MSB to come in. There are only 36 days to go in the period, and the first 89 days of the period have averaged $1.87 - so we need to average $3.12 between now and the end of February. Let's face it, if that happens, it'll be a huge surprise and would require a pretty strong announcement (either a partnering deal or great results from one of the trials) - and each day of delay moves the target higher. However, to me, the June rebalance still looks like a strong possibility!

6. There was a lot of bot activity and it looks to me like a lot of smaller retail client profit taking. There were only 2% of shares traded at the mid-point - and after the peak this morning, the price fell cent by cent with no mucking around to try to find volume at mid-points.



The average shares traded per block was only 1,230 - again indicating a lot of retail profit taking rather than big lines trading. 682,615 traded on Chi-X, which tends to be more insto than retail - but even then, it's not huge insto interest. The opening and closing matches were the biggest blocks of the day (as usual) and, while they were bigger than usual, they weren't going crazy - with 190,000 trading in the open and 238,000 trading in the close. There were only 2 other blocks a bit over 100,000 shares during the day:



7. This looks like a move from weak hands to strong hands to me. I believe we'll continue to see instos increase their percentage holding in MSB at the expense of smaller retail shareholders. I read the day as strong steady buying by instos, with some panicky profit taking by retail desperate to get out at a good price in front of the Iranian uncertainty on the day in the market.


Bottom Line

So, volume was high again today, and the opening match was very aggressive in terms of price moves, but it appears to me that there was a lot of retail profit taking, taking advantage of the initial big move up and then maybe panicking a bit on news of the Iran/Iraq retaliation bombing. Instos investing in small caps generally ignore this sort of macro news as irrelevant for individual long-duration and thinly traded small caps like MSB and see it more as an opportunity to get set in better volume.

Yet the share price stopped today at $2.20 - a 61.5% retracement (doesn't get much closer to the classic Fib retracement) - we closed the gap left on open and we avoided having a lower low than yesterday, or of closing below yesterday's low. So, I see the pullback as just a healthy correction, and the uptrend is intact.

While I don't think a March entry into the ASX200 is likely, MSB can still build over the next 6 months to the end of May and if we hold today's price, it should be a good bet to enter the ASX200 in the June rebalance - which usually generates consistent buying pressure by instos over the 6 months prior to entry - I think that plus the still large short position underwrites the share price between now and June - I look forward to another strong 6 months!

Remember, late last week saw some big positives which instos must only just be starting to react to:

1. upgrades by Edison ($A7.91 share price target) - a lot of overseas instos take notice of Edison research;

2. failure of a potential competitor in aGvHD (which really underlines how good MSB's results are); and

3. finalising the BLA's scientific trial results with new control data which again shows MSB's superiority

Most Aussie instos are still on holidays - investment committees won't be meeting until the end of the month and most won't yet have had time to react to these positive developments - yet someone has been quite aggressively adding to holdings since Capital sold out and the placement occurred last year. This buying has continued into early January at much higher levels than normally occurs at this time of year - it looks like it is likely to continue for a while yet, with daily trading volumes 3x-4x the daily average of the past year. Once Aussie instos return from holidays, I'd be surprised if there isn't another surge of buying!

And then, we've got the potentials of positive announcements re partnering deals and positive results from phase 3 trials in two of the world's biggest medical problems - Chronic Lower Back Pain and Heart Failure - explosive potential if this all works as it has already indicated in the phase 1 and phase 2 trials!!