does anybody know how to make use of the imbalance figures that come out at 3:40, and prior to the market opening? thanks in advance for any input.
i used to get these figures on the dow jones feed of an ilx terminal. now, i get these figures come from redi, which has a seperate column, just like volume, high, low, last trade, etc.. art cashin periodically mentions to watch these things. maybe someone like don bright or an ex-institutional trader would know how to profit from them.
I am not even close to an expert but I think the basic concept is that the majority of market participants suddenly want to buy, or to sell one stock....causing an 'imbalance'. The specialist doesn´t want to take the other side, atleast not so many shares because of the risk, so s/he advertises the lop sided market in the specific shares. Obviously hoping to draw attention to the situation so that other traders will either take the risk (by taking the other side) or notice a bargain and buy (in case it is a sell imbalance). So the strategy should be to buy when others aren´t and to sell when others are buying....hoping that the majority are wrong and you will be able to unwind the trade at a profit. If I´m wrong, then sorry! just trying to help and understand this myself. The best people to explain this would be Gene, RTharp and Don, I suppose.
Imbalances began to be published because of abuses in the 1980s. For example, if XYZ Brokerage Firm knew that it had S&P 500 stocks to buy at the end of the day, they used to go down to the floor and put sell orders in size for the S&P 500 stocks. The crowd would see this and the market got hit. In the meantime XYZ Brokerage firm bought OEX call options and SPX call options. Near the close they would CANCEL their sell orders and put the proper buy orders in for market on close. Then of course, they did well with their options that the bought and the stocks went up. Specialists had a hard time finding the other side to the trade and they, for the most part, took the other side. Back then, specialist units were smaller partnerships and taking on these big positions over the weekend was not the best thing to do for a risk management basis. This is how the "triple witching" expiration got named (major volatility!). Now S&P 500 cash and futures are settled on the opening print as opposed to the closing print which helps out a lot. These closing imbalances are published by the NYSE at 3:40 pm. Once this cut off is reached, you CANNOT cancel your market on close order. You are, however, allowed to enter an offsetting market on close order against the published imbalance after 3:40 pm. The NYSE publishes these imbalances to reduce volatility (in other words it is trying to find the other side to the trade). Today, most of the closing imbalances are for S&P 500 index additions, deletions or rebalancing. Of course on June 30 of each year, you get the Russell rebalancing which can be a lot of fun.
MOC's (Market On Close) and MOO's (Market On Open) orders, like what we had this moring can best be summed up in six words: sometimes good, sometimes not so good. At 3:40 the specialist will post the imbalance ranging from 20k to 1 mil+. What he the specialist is doing is trying to get people to help him out with this trade so that he does not have to front the risk for the entire order. Then, at 3:50 the specialist will again post the remaining imbalance or will post that the order has been matched or filled. You will need a good news feed like Bloomberg or something to get MOC's. As a trader you learn which stocks will really screw over a buyer or seller and those are the good MOC's. IGT, TIF, LEH are just a few good ones. The way it all works is that if there is a buy MOC for 50,000 at the market do you think the specialist will fill that order at the current offer, say 60.50? No way! He will screw him over bigtime and gap that stock up and fill him at 62 if he wants to. That is what you hope will happen as a trader. It is kind of like your reward for taking on the risk and helping the specialist. Understand that you are at the mercy of the specialist. You cannot back out once you send an MOC order and all MOC's must be for at least 3000 shares.
Are you sure about 3000 share minimum? I've sent MOC orders for as little as a few hundred shares playing S&P additions. The software we use at Echotrade has MOC as one of the time in force selections. Must be in by 3:40 though, and can't be cancelled.
I'm guessing he meant that imbalances less than 3000 shares are not reported. I don't think there are any restrictions on minimum size of on-close orders, except maybe they have to be round lots. I think the official media for publication of the imbalances is the DJ newswire. That's the only place I've seen them. AAA: IB is only an execution platform, with quotes. No news, charts.