It’s important to understand that about half of all market volume, around 45% of it, comes from borrowed stock. So, when you see a bunch of volume out there, half of that volume isn't coming from owners, it’s people furnishing borrowed stock. So, when that level drops to near 30% you can conclude two things. Number one, the cost to borrow that stock has risen and machines just go around the market scooping up cheap stuff to borrow and furnish to the market because they just want to inter-mediate the intraday volatility, which by the way in the S&P 500 is 300 basis points every day. People don't understand how much movement there is. So machines will inter-mediate that and go long and short based on how average prices are behaving. But when the cost rises you get excluded from a basket. And if there are deal arbs walking around and talking to people who actually are thinking (and who hold Microsoft) those owners may not want to loan their securities out. So the levels decline and we can look at what happened to Nuance as well and we will see a move.

Follow the Shorts on Nuance
Look at Nuance. Nuance was well over 50% short and then 73% short and then it imploded. Nuance Communications (NASDAQ:NUAN). It dropped from 73% short all the way down to 30% and there is your deal threshold level. So there was confirmation from the deal arbs that probably Nuance was the target and that arrived on April 6, so it wasn’t very long ago, but long enough ago to tell you that all the deal arbs had shifted from short Nuance on its fundamentals to long Nuance on its M&A attributes.

The Tech Sector is Outperforming
We talked about how tech would perform and Early in April, I said tech is going to be the place to be again, no matter how much you hear this discussion about the re-open trade and the shift back to value and the stocks that have done well. There are always outliers and exceptions, and clearly, Zoom hasn't done well, but Microsoft sure has. Look at how well Microsoft has done and it comes back to the construction of the market and what the money does today.

Market Structure EDGE is the first decision-support analytics platform for traders to use market structure — the rules governing how stocks trade – for portfolio shaping. EDGE gives traders simple proprietary metrics to effectively manage short-term risk and identify opportunities to increase the probability of market-beating returns. Learn more at www.marketstructureedge.com

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.