Q&A
Since You Asked
| Professional trader Don Bright of Bright Trading
(www.stocktrading.com), an equity trading corporation, answers a few of
your questions. |
Don Bright of Bright Trading |
SPECIALIST PARTICIPATION
Would you tell me what prints on the time and sales would indicate
specialist participation in a stock? I've read and observed that double
prints on the offer often reveal that the specialist is going long the
stock in the same amounts that other market participants are buying the
stock. What do double prints on the bid mean? Is this the specialist going
short in the same manner? Also, where can I research when and how a specialist
is governed in entering and exiting positions? Thanks. -- grimer11
You can tell exactly when a specialist is participating in certain prints,
and when he is likely to have participated in others. Here's an example:
When you see the bid or offer change significantly, without the other side
changing at all, and then a block trade (print) goes up at or near the
recently changed quote price, you can be pretty sure that the specialist
took part in a negotiated trade. This activity indicates that the quote
price must be changed so that the trade price falls within the (new) national
best bid/offer (NBBO) as required by regulations. These block trades are
always 10,000 shares or more in the stocks that I trade.
Here's a second example: When you see the quote size go to 1x1 (indicating
a closing of the book), the specialist is able to sort out the orders in
hand without concern for new orders (at least for a few seconds). This
is likely to indicate that the specialist is about to print a block, or
a few blocks, around the last sale. Either he is cleaning up orders with
his participation, or he is accommodating orders with limited participation.
I teach my people how to read the running tape, live and real-time, whenever
possible so that we can respond to this activity and possibly participate.
After all is said and done, a review of time and sales will show what we
missed out on, if nothing else. I also teach our traders how to prepare
for these anomalies before they happen (at least in our core stocks).
Double prints are simply the matching of trades between a broker and
the specialist or book. Go to the NYSE and get a copy of their rulebook
if you like, but the basics are pretty simple. The specialist can only
participate in, not initiate, upticks and downticks (thus the appearance
of double prints). The specialist is generally accommodating orders rather
than speculating on price movement.
SLINGSHOT ORDERS
What exactly is a slingshot order? Is it an order on the same side
as an opening order? If a stock opens down 30 cents, you go long, and then
it goes down another 20 cents, is that where you double up? --Predictor
Slingshot orders relate to the closing half of our opening-only order
strategy. Often a NYSE stock will open up, say 35 cents, and then in one
or two prints it will tick down a nickel or a dime. It may very well return
to its upside run for the day, based on supply and demand, of course, and
overall market conditions. We encourage placing a closing order immediately
after getting your fill from the opening order, so that you can participate
in this profitable event. If the stock simply starts slipping back down,
you can adjust your bid based on your tape-reading skills.
SLINGSHOT ORDER FOLLOWUP
Thanks a lot for the answer. I guess I misunderstood the meaning
of the order. For some reason, I thought this was an order to initiate
a position, not to close it out. Often the stock moves further in the direction
of the gap some amount, only to reverse course and fill the gap later in
the day. Is there a strategy for this type of trading, or any technique
to identify which trades will run away in the direction of the gap and
which trades will reverse and fill the gap? --Predictor
You're referring to a "shakeout" (GE is notorious for doing this). The
stock will open up 30 cents, print a couple of pennies higher, then drop
back through the opening price. This amplifies the importance of watching
the exact same stocks on the tape, day after day, so that you get a feel
for how they react after the opening. Although this only occurs a small
percentage of the time, many new people make the mistake of covering too
soon.
ON SPIDERS
Here's something no one can explain to me. ... Twice now I've noticed
that the SPDRs have opened down significantly on an expiration day from
the previous close. Futures were up in both cases. The DIAs are up, so
what causes this with the "spiders"? Many thanks. --Allan Boote
Be sure to check the over/under relationship between the previous close
of the SPDRs and the SPX (spot price of the Standard & Poor's 500).
There may have been a premium or discount to the "actual" spot price.
E-mail your questions for Bright to Editor@Traders.com,
with the subject line direct to "Don Bright Question."
Originally published in the April 2004 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2004, Technical Analysis, Inc.
Return to April 2004 Contents
