Guys in our office have gotten blown up for a second time in large imbalances on the close in IBM that reverse upon the last 10 minutes? Does anyone have suggestions/strategy for being able to spot this type of setup or an explanation to what happens in these trades?
Anything can happen in the last 20 minutes after he publishes that first imbalance. He could get no offsetting orders, partial shares, or too many shares, which would create an imbalance the other way. I've gotten burned on these enough to know about how much size a stock should have for an imbalance relative to the daily average volume to make the chances of it working high enough for me to put in the actual MOC order. If the imbalance is not large enough you can just trade it short-term without putting in the actual MOC order. So just trade it for whatever quick move you can get right after the imbalance is published & close it out with a regular limit or market order instead of the MOC order. This way you are not at the mercy of the specialist.
Trade MOC at your own risk. Stocks can go either way, and once you are commited for the closing print, you are committed to it. I have seen them go in your favor for a buck, and have seen them go against for a buck. To not take the close, risks getting stuck with a position overnight, etc. The MOC game is fairly risky, and you are completely at the mercy of the specialist, size your positions accordingly.
If your going to play this game you need fast DMA to the ECNs. Lime is probably the fastest out there and then you need to be automated. You can setup a order flow network between the NYSE and the ECNs using various methods going into the imbalance periods. If you are smart about it there are a number of ways to "hedge" the risk incurred during this time period.