Stocks & Commodities V. 27:11 (47): Q&A by Don Bright

Q&A by Don Bright

IMBALANCES

I’ve been watching end-of-day (Eod) imbalances to see what effect they may have on price and I can’t find any pattern. Do market-on-close (Moc) imbalances mean anything? I read recently on Yahoo that in theory, a large buy imbalance would cause a stock to gap up at the closing price to accommodate the order and the reverse would be true for a sell imbalance, which should gap down the stock price. Traders would profit from the move with a buy imbalance by buying the stock right before the close and sending an immediate sell on close order. This way, the buy imbalance is reduced by long traders who are seeking a profit and ease the specialists’ job. But I haven’t really observed this as a reliable pattern. — Donna

Yes, we have been using the Moc imbalances for years in various fashions. There is one benefit for many of our traders who focus on trading the same two or three stocks, day in and day out, in that they may be long or short at the time of the Moc imbalance, and when they see a significant number, they can respond to the close or ride the imbalance if it fits their position. These traders learn how their stocks react to various levels of published imbalances. We provide a spreadsheet to take snapshots at 3:30 pm (Nyse time), 3:40 (first imbalance), 3:50 (second imbalance), 4:00 (end of day), and then the actual Moc price, which usually hits a couple of minutes later. We also track where the S&P futures are trading at those times to see if the price movement is being caused by the overall market, or by the imbalance.