How does a big volume bar produce a small price movement?

[ironchef]

Thank you! It is fascinating to me as well. Kinda like wondering how the gravitational or nuclear forces came to be.

Let us know when you figure that out. Maybe we can be better traders once we understand that.

Best wishes.

 

[mushinseeker]

What is fascinating to me was the tape action when there was a specialist. He would show size at "figure" like 89.97 x 90 50 x 999 and all the bids back off after the 1st "show"and after trading some at 90.. then lots of churning below, then the big prints come in at 90 and bids are not backing up anymore... the wall of supply gets absorbed .. 1 hour later up $1

 

[777]

I have had similar observations as you did and here's what I found out.

To your first question "why some big volume spike didn't affect price much", the answer is "block trade", which is a pre-negociated trade between two or more institutions and executed through a middle man (a broker).

An example of such was the rumored report a few months back of Bill Ackman being contacted by Jefferies Group to buy Carl Icahn's stake in Herbalife (HLF).

It was reported that Carl Icahn wanted to unload large numbers of his HLF shares, and one of his brokers (Jefferies Group) contacted Bill Ackman who Jefferies thought would be a potential buyer who's also financially capable. Were this deal actually executed, it would be done by Jefferies by selling and buying the blocks of shares simultaneously, at the prevailing market price, without actually putting the shares up to the bid/offer but simply report the Time and Sale after the fact. As such, you may see one or several large blocks of shares being reported on Time and Sale, and yet, it had little effect on the price movement.

To your second question. Now the block trade is done, which didn't affect the price for the above reason, the stock is just back to trading on its usual order flows, and at that time of your obversation, very likely there were no or little "natural" buying and selling going on, thus a small "natural" order can move the price up and down a lot, especially if it's a thinly traded stock.

Hope this makes sense.

Nice post.

 

[Freestyle888]

Nice post.

That post made no sense to me at all.

Why would anyone bother to do a block trade on exchange instead of bilateral? On a futures exchange this makes sense and happens all the time, usually after-hours, in order to use the MTM or margining system to reduce counter-party risk on an ongoing trade. On a stock trade it makes no sense.

In the Icahn example, I would have:
1) thought Ackman would have made the call since he was in the hot seat with redemption notices; and
2) the volume involved would have been so massive, that it would have made the volume data useless as a result.

This was an interesting thread otherwise.