I'm no level 2 expert, but something I see constantly in less liquid naz stocks (under 300k per day) is agressive selling by a MM selling essentially an infinite number of shares hidden behind a lower size offer (100 or 1000sh). This aggressive seller keeps offering lower and lower, selling thousands of shares at lower prices, despite there being a good demand for the stock, and lots of buyers taking shares from the MM even as he offers lower prices. Finally the MM "settles" at a price that is very near (or at) an impt support level, and from there continues to sell thousands of shares to eager buyers who [apparently] want to buy at support. Quite often this is followed by a good-sized block on the tape (5,000-20,000 shares - remember the stocks I'm referring to only do a couple hundred thou per day). Today I noticed this scenario play out, and during the selling period, some blocks traded during and shortly after at about a nickel below where the MM was selling. All along, the MM was selling stock from the open until the price started to drop, and then moved lower and kept selling, often at a psychologically important level, such as a whole number. It will often also occur right around an impt support level. Also, there's been no news on the stock, so there's no panic selling or anything like that. So taking these things into consideration, what's the real story? Here's a more detailed scenario - ABC has important support at 20. It's been trading around 21-22 the past couple days, and today it opened at 20.75. As usual, ABC started moving up to 21, where it met a MM selling alot of stock at 21.00, and then the MM moved down and finally got down to 20.05, where he was showing 100sh offered at 20.05, but was hiding size behind it, actually selling thousands of shares. 20 is a very important support level for the stock, and at 20, there are many buyers - ECNs and MMs - lined up to buy. During this time, a few blocks appear on the tape at 20.00. When the MM is done selling, the stock, of course, skyrockets back up to it's normal 21-22 range and it's then business as usual. I'm hoping there is a simple answer for this, but any insight would be huge. Thanks!
That's the thing with illiquid Nasdaq stocks;one MM can control most of the action in the stock.Perhaps the MM that kept offering the stock down had a big sell order from a client or was just shorting in the firm's proprietary account.If the MM can't get a sell order filled at a higher price,he'll try to bring the stock down to a point where he will provide the necessary liquidity to facilitate his customer's sell order and buy up the stock,come off the offer,go on the bid,and hopefully watch it shoot up,as this is alerting everyone that he is done selling for now.
So Vinny, you're saying that the MM pushed the stock down to generate buy interest, and now will get behind it and push it up to create even more buy interest?? Thanks! -bung
Usually what the MM is doing is saying "if I buy them you buy them" or "if I sell them you sell them". Thus, the MM needs to position himself so that he can accomodate the customer's order (i.e., he is not taking on any inventory risk).
So basically in my example above, the MM knows he has to buy at 20.00, so he is shorting a ton at 20.05 to set up for the buy?
...and what about the VWAP??? in my scenario, it's possible - even likely - that the VWAP will end up being less than his avg selling price - so he could go out right before the close and cover his shorts with VWAP orders.
yet another reason not to mess with those illiquid stocks. That is truly an insiders game. Usually there is one market maker "the axe" who really can control the price on a short term basis. It amounts to legal stock manipulation and if you don't know the inside story then you are the sucker at the table.
As someone who does not trade illiquid naz stocks, I have to ask the question what is wrong with this scenario. If some axe is selling you can wait for the short squeeze or get short with him right? I love that scenario when people are selling a ton on listed stocks. In fact I made half my day on a similar scenario in a large stock this morning. A walked down huge offer with big selling onto every bid. My favorite trade. Then when it gets near the next round number look for the squeeze to start. I wish I saw this everyday. So am I missing something on the naz?
yeah, i'm with you on the listed stocks, but the problem is that i've been doing more naz trading lately (listed has been weird for me lately) and i'm no naz expert at all, nor do i strive to be... so that's why i'm curious to know what's going on. with listed, figuring the intentions of the buyer/seller is fairly straightforward, but i've never tried to do this with the naz. from what i can tell, the prints being where they were (seller who won't budge and then big prints a nickel below) seems like the MM had to buy some blocks and was basically getting ready for it by shorting a ton a nickel above where he was going to buy, like a specialist getting ready to do the same...so the MM drove it down to an important support level because he knew it would be a safe place for him to buy, and that it would also be a good place for other traders to buy from him, making it easy for him to get short ahead of the block he had to buy at a pre-arranged price. so maybe the MM did this because it was the safest place for him to set up the transaction. we need some naz experts up in here...