IL&P: next in line?

All this week, while the politicians were preoccupied with Anglo's saga, I've been watching what appears to be the next downgrade target: IL&P. Intimately linked to the Anglo Irish Bank's shenanigans, IL&P has had a rough ride alongside its other free-standing (for now) peers: the AIB and BofI. Towards the end of this week, it seems, this term - 'alongside' - has become far less descriptive of IL&P's share price behavior.

Are markets on to something we are yet to discover? I don't know, but here is how strange the things got in the course of last week.
Chart above shows correlation between the daily volumes for IL&P shares and the average daily volumes of AIB and BofI shares since December 2008 through February 20 close. Clearly, things gotten a bit out of pattern ever since the local low -0.5 correlation was approached on February 16. More importantly, Friday the 20th of February saw a reversion of correlation down to below 0.25.

As illustrated in the following chart, this is not surprising, given that both AIB and BofI volumes declines on Friday have been countered by a significant volume uptick in IL&P.Of course the volumes changes - especially pattern reversals over historical averages - are significant as they signal (in this case) a rising support to the general direction of share price movement. At this moment, the market appears rather committed to downgrading IL&P, while treating AIB and BofI much lighter.

Of course, the chart above lends some support to my last hypothesis: while both AIB and BofI are seeing moderating decreases in prices alongside falling volumes, IL&P is seeing increasing downward pressure on price alongside increasing volumes (note the chart above plots the product of price to historic average ratio and volume to historic average ratio). But don't take my word for this: chart below illustrates by referring directly to prices.

And the weekly moving average of correlations between closing prices for AIB and BofI with IL&P are starting to show strain as well.On the net, out of the four main parameters I usually use to gauge the possible shifts in market attitude toward a specific stock:

• divergent price moves relative to historic average and peers;
• volume changes to signal increasing support for one share relative to its peers;
• moving price correlations relative to peers diverging away from strong positive values; and
• moving volume correlations diverging from strong positive values

all four are currently signaling some potentially new concerns about IL&P emerging in the market. Can it be the aftermath of the Anglo affair? Possible. But how likely is such a scenario given extensive downgrades to IL&P on the back Anglo's news in the past and given that by now the company has been devalued as if it were a pure banking sector play, effectively discounting the insurance side of business to nil (chart below).

Can it be that the markets are becoming aware of some new set of skeletons in IL&P's closets? Also, possible. And, given the scandals surrounding Anglo, Irish Nationwide and other players, somewhat probable as well.

Of course, time will tell for sure, but I would watch IL&P very closely on Monday...

PS: Oh, yes and intraday volatility for IL&P is also moving against the peers: