Dennis Dick
Dennis Dick, CFA, is a proprietary trader, and market structure consultant with Bright Trading LLC. He has twelve years of proprietary trading experience specializing in pair trading, crutch trading, momentum, contrarian, technical, and algorithmic trading. His insights into equity market structure have been cited in a number of financial publications including the Wall Street Journal, Reuters, Dow Jones, and Forbes. Dennis is a regular contributor at CFA magazine, and a member of the Capital Markets Policy Council at the CFA Institute. He holds his Business Degree from the University of Windsor with a concentration in Finance and Economics.
Posts by Dennis Dick
Relevance of Gaps
0May 1, 2012 - 4:08 pm
by Dennis Dick
in Trading Education
On our premarket show this morning we highlighted a gap area in the chart of AVP, and the potential for that gap area to be filled.
Understanding Imbalances
0April 16, 2012 - 9:06 pm
by Dennis Dick
in Trading Education
If you were watching the IBM tape late in the day, the stock started to sell-off significantly around 3:45 ET, and then gapped down on the closing print to close at $202.72. What happened?
Your answer is a large sell imbalance was posted by the NYSE at 3:45 pm ET. These sell imbalances are published every day at this time, and sometimes they can have a major influence on the price of the stock.
The designated market maker (DMM) on the floor of the NYSE continuously logs all the buy MOC (market on close) orders, and all the sell MOC orders, on their security. And then at 3:45 PM ET, this information is disseminated to the market. (It is a good idea to check with your data provider, to make sure they carry the imbalance feed).
Large buy imbalances will typically press the stock higher, where large sell imbalances will typically press the stock lower.
In the IBM example, traders subscribing to the imbalance feed, seen the sell imbalance at 3:45, and then began selling the stock, with the expectation that the closing MOC sell orders would press the stock lower. It worked perfectly in the case of IBM today, as the stock gapped down on the closing print.
It is not always that simple however. In this HFT world, many algorithmic systems will manipulate these closing imbalances, and sometimes in the last minute or two they will flip, causing a sell imbalance to go to a buy imbalance. If that happens it catches many imbalance traders by surprise.
Sometimes these imbalance plays get crowded as well. And if too many imbalance players are on the same side of the trade, the imbalance could also flip.
In any regard, funny things happen after 3:45 in NYSE issues, and if you don’t subscribe to the imbalance feeds, you might be missing some pretty important information.
End of the Quarter Window Dressing
0March 30, 2012 - 4:16 pm
by Dennis Dick
in Trading Education
Today is the end of the quarter. Considering that we have had one of the best quarters in years, it would not be surprising to see the market close strong this afternoon. Why is that?…two simple words, “window dressing”. What exactly does that mean? To put it simply, it means that portfolio managers typically report their holdings to their investors at the end of the quarter. And what better way to impress your investors, then to hold stocks that have been performing very well. In other words, portfolio managers tend to “dress-up” their portfolios, by buying the quarter’s outperformers, and selling the laggards.
Therefore, stocks that have had a good quarter, often have a good couple of days at the end of the quarter as fund managers accumulate positions in those issues. For example, take Coke (KO), it has had crazy buy imbalances at the end of the close the last two days, probably due to some institutional investors trying to accumulate stock. It very well may have a large buy imbalance again today for the same reason, this would press a stock like KO higher into the close. Overall, since the entire quarter has been very strong, there could be some significant accumulation in a number of issues at the end of the day today.
These gains are typically short lived, as these stocks will often give back their gains in the following week or two. In any regard, if stocks do rally into the close, it may be a good idea to lighten up on some of your longs.
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