Software and data industry going the way of gas street lighters?

By Jody Elliss

Every year we can look at the top 200 ASX index close of the year from the December options Thursday ie the middle Thursday in December and then compare it with the last day of trade in January. This has traditionally been as good an indicator as any of a bullish or bearish year, hence the old saying “UP in January, Up for the year! Down in January, down for the year!”  XJO finished December at about 4650 and despite good initial gains, finished January below 4650, leaving us all with the unpleasant thought that we are in for a depressed 2010.

Fund managers, financial planners, investors, speculators, and virtually everyone involved in the financial markets (FM) was looking for any sign of even a slightly bullish 2010. The huge bullish run from May to October 2009 saw a recovery of fortunes for many but the market has since been retracing those gains, leaving the FM industry struggling to recover from the GFC.

The last two years has seen the “culling” of nearly 50% of active traders from the stock market.  Comsec, Etrade, and other large organisations are all reporting significant cuts to trading revenue.  All the major CFD providers are reporting a large attrition of “active” accounts in the market. This has made the broking industry far more aggressive in its fossicking for clients, increasing products and services to the point that broker execution platforms include, charting, technical analysis, fundamentals, and recommendations as part of a service to attract clients.

This has impacted directly on the stock market data industry and it has seen many smaller companies just disappear.  The data industry has been long hamstrung by ASX costs to supply individuals live or delayed data.  However, this same data is now being provided free to “active” clients by brokers to promote any sort of market activity.
Generic data companies that provide ASCII and Metastock data are unofficially reporting renewals of data services of below 30%. This has been the case for two years now and by definition, this leaves these companies with an active client base of around 15% that of 2007.

Proprietary data companies have fared better where their clients have been able to use proprietary information to their advantage.  Both Lincoln Indicators (Stock Doctor) and Investor Centre (IC-I) are still claiming over 70% renewal rate for existing clients. Both these organisations supply charting, fundamentals, and portfolio management information to their clients and these clients have not been eliminated from the market. However, new business is very rare and both organisations are unofficially reporting a shortage of new business.

It is an industry oddity that the most NEW business is written the month after any market high.  Even though the real time to take advantage of these packages is when the market is near or at a low point, interest is generated as a factor of greed.  With the market down or sideways, the call to action for new clients is at a low point. With the hope of an aggressively bullish 2010 quickly disappearing, it takes with it the future of many Australian and international software and data companies.

This has in turn affected the Financial Market  trade shows which has gone from more than 18 shows  Australia wide in 2007 to just 3 for 2010, after the Traders Expo again cancelled Perth for the third year in a row due to lack of exhibitors. This has also seen data and software exhibitors at the yearly ATAA and AIA conferences consequently diminish to the point of nonexistence.

The 2009 World Traders and Investor Expo (held in Las Vegas) saw more than 1,000 exhibitors from all over the world – up on 2008. However, data and software providers were noticeably lacking from this show. It was dominated by real-time execution platforms offering everything from “at call” fundamental market reports to advanced “Elliott Wave” and “Gann” forecasts, all based on tic and 1 minute charts.

Even the “strategic” platforms were based on intraday data and information.  Equis (Metastock) and Omega (Tradestation) had no ‘end-of-day” software available for sale and were both promoting proprietary data execution platforms for the US market. Rumours have been abounding for more than two years that Equis intends to kill off its end-of-day business as it is deemed ‘non-profitable’.
We know there is still a call for software and data solutions. The Canning College TAFE in Western Australia runs a stock market investment course once every 3 months and it continues to run to capacity.  David Barnes, the Dean of Studies, continues to train students with the IC-I software and reports that they still see the value of standalone software fed by up-to-date data, with more than 80% of students attending, purchasing the software.

As Lincoln Indicators and Investor Centre continue to provide useful services to investors and traders, they continue to hold on in an ever shrinking market. This market is seeing the natural attrition of people who are just not making money in a difficult financial market and very few NEW investors arriving to take their place.

The resultant is an obvious turn towards internet based advisory services or the operation of managed funds and the extinction of end-of-day data and stand alone software as we know it.  There, unfortunately, can be no long-term future for this industry that many argue has been in its death throws since the GFC struck.

Investor Centre has a vested interest in continuing its services as we derive an enormous amount of useful investment information from seeing corporate buying patterns (Elliss Big Money Index).  As Investor Centre runs its own fund and continues to rely heavily on this information, it will continue to factor costs of the information to its client base and in-turn provide useful services.

However, the once great data industry is now in its twilight hours. Amazingly, the ASX has worked towards this end, with only those correctly licensed, forced to pay royalties. Unless 2010 breaks into a bullish year with an aggressive breech above 5000, we can expect to see very few FM software and data providers still standing in 2011. 

Jody Elliss is the CEO of the Investor Centre. He will be presenting at the AIA National Investors Conference from 25 to 28 July 2010 at the Surfers Paradise Marriott Resort http://www.investors.asn.au/events/national-conference/.

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