FIC Weekly 16.11.20

For months now we have been waiting, hoping and wishing for substantial changes to kickstart the market. After months of doom and gloom, we seemed on the edge of the promised NASDAQ technology, market makers and ultimately the liquidity that is currently needed. It turns out that was only a mirage and now it seems so far away.

Nevertheless, Football Index has provided us with something and this Thursday's changes should improve the platform.

Change in Bid Zone

One of the most crucial changes that will go live at 9AM on Thursday is that 'Instead of sitting 1 penny below the Buy Now price, the Offers floor will be lowered to 1 penny above the Instant Sell price.'.

This change in the mechanism may result in short term pain whilst we have a negative sentiment and oversupply of shares. But, it may well help us hit the very bottom. Right now, that seems close.

Although there have been many red flags in recent seasons, I don't think many could have predicted how incompetent Football Index would be when the market shifted from optimism to pessimism.

In the past, Football Index has rarely been met with such concerning issues because the market had almost always been growing. Perhaps this led to overconfidence form traders too and now that sentiment has shifted we have gone from 'irrational exuberance to unjustifiable pessimism.' Benjamin Graham talks about how common this shift is when talking about real markets and I suppose what we are currently seeing is only natural given the current mechanism, lack of confidence in Football Index's management and wider economic situation.

Where do we go from here?

Confidence is currently at an all-time low. I think many are just sick of even logging in to their portfolio when they know that their players are worth a lot more than what is currently being offered. Price and value are two different things and right now the value is unbelievable.

For those with cash available, this is a great opportunity to buy. On Thursday we could possibly see players drop further but some of the prices available via the Matching Engine now seem like they can not get any lower. Eventually, we will hit a bottom and I say this because I can't imagine things getting too much worse for many reasons with the dividend yields on offer being at the top of the list.

Although this is just speculative, my guess is that there have been plenty of problems behind the scenes with regards to NASDAQ and this has had a negative knock-on effect with regards to onboarding market makers. Due to the current mechanism and the oversupply of shares due to the uncertainty we have seen, the market has spiralled downwards and out of control. The place we are currently in is very strange. Last week I showed how much value there actually is based on a lot of data and today with prices even lower, there is even better value.

Nasdaq itself will not fix this mess. But, it may help attract market makers and FI's seemingly, new 'target market'

Thursday's changes are likely to lead to prices reflecting true demand better which could cause some drops but it is also likely to result in more clearly visible liquidity. There is a lot of trades still going on and I think the visibility of this with the new mechanism could become a self-fulfilling prophecy and lead to more optimism and liquidity once again.

However, until a third-party market maker steps in and provides the liquidity that is truly needed, I do not think there is enough money in the market for us traders to sustainably provide the liquid that is necessary. Therefore, I am expecting the upcoming months to be a bumpy ride with relatively wide price fluctuations before real intervention helps us get back on the path of fairly consistent growth.


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