Well, I will give you an answer. If large FCM are doing equity acquisition using CME instruments, i.e. hit bid on rate future and lift offer on index future, alternatively (sell cash bond and buy cash equity) then the HFT firm providing offer on the ES will need to lift offer in cash equities to perform the index arb. This means that a larger book imbalance tilted to offer on listed cash market is just providing risk offset for HFT firms providing offer on ES. Institutional buying is the other side of this trade, so the HFT arb group is heavy in cash offer and ES offer. They lift offers in cash against filled offers on GLOBEX. This means that they need cash offers, and they also need the cash offers to be firm.
Increased automatic flows of the type you describe certainly affect the market - ditto for buybacks. However, it's probably not very useful / informative for making allocation or trade decisions. Simple metrics like the earnings yield show that the market is not clearly overvalued, and hasn't been during this whole bull.
I don't follow. You're saying that someone offers on ES so they have to offer on AMD (a stock I looked at)? I'm missing something or perhaps you've got a bid or offer switched in my head What I'm seeing is aggregate size of offers is larger than bids on AMD
I just mean that the chain of arbitrage goes like this... (e.g. funds buying with speculators piling on) Buying algorithms => ES offer => cash offer / dark pool offer. Basically the institutional bid gets 'shared' through the whole liquidity pool via arbitrage. The index arbitrageurs need thick offers in the listed stocks and dark pools so that they can place offers on GLOBEX to absorb institutional and spec order flow on GLOBEX. Index arb is sell future and buy stock (so they need to buy the underlying, hence order imbalances in the offer/bid sizes).
When Jo Blogs is 100% in, then it's time for the banks to sell and take there money, they have to sell to realise profits and someone has to lose, stock market if your a rookie is a huge trap to take your cash. They'll sell twice aswell, ie move to shorts, profit both ways!!
Index's only include Stocks which are bullish, they move companys in and out to enable this, which limits the down side, stick to trade the the index stocks or just the index.
OK so then why is bid size < ask size in the stocks I looked at, which are part of S&P 500 index? You would expect in this case bid size to be consistently higher. My guess is that bid doesn't want to tip its hand.
Figured it out after inspecting day-by-day: most of the time, the ask size jumps a lot higher than the bid size, but they are mostly the same. That is, it has a higher stddev than the bid size. Interesting, but explains what I saw.
Cool charts. Looks like good analytics you can do with those tools. The bid is being spread around ES, SPY, components, and dark pool. AMD is (competing with other issues) as a potential source of liquidity for cash and carry arbitrage. I'm saying that the new market structure has many uses for a stock like AMD as a short (building synthetic index portfolios). Liquidity is provided where it is anticipated to be needed. The cash buyers of AMD are much smaller in the grand scheme of things.