interpreting block trades

Discussion in 'Trading' started by roger2, Aug 24, 2001.

  1. roger2


    On the T&S you see several big trades, say 25,000 shares each. For that stock this is a bullish sign because it indicates that an institution is opening/increasing a position, right? Or is it?

    There must be someone on both sides of a trade, and most individuals don't have 25,000 shares to sell in a single transaction. So, it seems logical to me that when you see a block trade, there is an institution on both sides. PLEASE correct me if this assertion is incorrect.

    If this is correct, then although one institution is buying another institution is selling thereby decreasing/closing a position in that stock. So how can one draw any conclusions whatsoever when there are block trades on the T&S ????

    Can someone explain please?
  2. Babak


    Block trades can also occur between a market maker who will take a large order (a purchase for example) and then turn around and slowly sell it to retail clients.

    There really isn't useful to look at large trades and think that that is either bullish or bearish. As you mentioned there is someone else on the other side.

    I think what matters most to reading the tape is the speed of trades, the volume (how many), whether it is at a bid/ask or splitting them, etc.

    Simply focusing on a large trade and thinking "That must be bullish/bearish because a big institution just bought/sold" is not correct in my opinion.
  3. roger2


    thanks Babak...

    I have frequetly noticed that large trades are not even near the inside market.

    As noted, someone must be on both sides. But why would any market participant, for example, sell for .50 lower than the current offer?

    Could this be interpreted as bearish (for that stock)? Or is it just some pre-arranged deal which would have occurred anyway, at a fixed price, without regard to the current inside market?
  4. Htrader

    Htrader Guest

    There are a number of reasons why a block trade might cross away from the market. In your example, the trade was 50 cents below the offer perhaps because the seller had such a big block that the market marker was only willing to execute with a 50 cent cushion.

    On the other hand, large block trades done outside of the nasdaq market are often not reported in real time. So that trade may have actually occured a while back. there is really no way to tell. Thats why I try not to pay too much attention to most block trades, unless an enormous trade like a million shares crosses.

  5. Turok


    >I have frequetly noticed that large
    >trades are not even near the inside
    >market. [snip] for example, sell
    >for .50 lower than the current offer?

    Very often, these off the inside block trades reflect the END of a run of buying or selling for a client.

    A MM with an order to buy 35,000 shares of stock will work the market over the course of several hours accumulating for the client and then transfer the shares to the client in one large block.

    Often the second transaction will occur at the average price of the purchased shares which can be significantly away from the inside since the buying pressure over those hours drove up the price.

    If I see steady buying pressure that does not reflect the market tide in an individual stock, I watch pretty close for one of these blocks going off significantly lower than the can mean the end of the buying pressure as the MM steps out of the game and transfers shares to the client.

    Your results may vary.

  6. roger2


    thanks for the responses...

    I have been watching INTU this week. They reported modestly positive earnings 8/22 (Tue) after close : $0.02 better than consensus and +17% yoy reveune.

    I actually counted the block trade (>10K) volume for the past 3 days. Here are the stats (in thousands):


    Unfortunately, my T&S would not allow me to search far enough back to compare the pre-earnings report block trades.

    If you have seen the chart for INTU, it has had an incredible run the past 3 days from $30 to $39. Of course that can partially be explained by the general rally on Friday.

    But, considering INTU's strong move and the amount of block trades as noted above, are there any conclusions (or guesses) which can be drawn regarding this action? Based on the percentages of block trades to the totals does it appear that institutions are increasing positions?

    Is 26% - 32% an unusually high amount of block trade volume?

  7. dozu888


    Please read "Market Maker's Edge" by Josh Lukeman for correct interpretation of blocks.
  8. ktm


    I don't give much credence to blocks either. With INTU, it looks as if there was expected disappointment on Tues afternoon, but they got a nice surprise and ran it up on Weds. It was actually down on Thurs and then rode the bull rebound on Friday. If we don't get follow through early in the week, I'd be looking to get short here.

    What I like to see on the T&S is a buyer or seller who has a block and cannot find the other side willing to take the transaction. The trader or MM may have a set amount of time to get the transaction through and near the deadline, he has to dump it on the market. The prints will be quick and small and there will be a significant price movement. The resulting price action isn't as interesting as the fact that no one was willing to take the other side. To me, this is more telling about where a stock is headed.

  9. ktm



    I'm looking to get short on INTU this morning...with a stop around 39.10. Unless we get a good sustained rally, I'm thinking this could see sub 35 by the end of the week.

    Whaddaya think?

  10. roger2


    this is the reason my funds are tied up - and a stupid move on my part

    i shorted this one too soon (a common mistake for me), so i REALLY hope you are right

    unfortuately, AFTER i took my position i started reading and found out that INTU is a pretty solid company and a article is optimistic on INTU and says they are insulated from what ails tech

    the first 3 days after their earn report, every positive tick on comp would cause equal or greater response in INTU. yesterday, however, there started to be some signs of sellers

    looks like it is going to gap up .25, i don't know why, it did not do this yesterday
    #10     Aug 28, 2001