Large trades outside the market mean??

[davez]

I am trying to understand what might be happening when I see large block trades (10,000+ shares) occurring outside the market.

I see these most readily in Time and Sales and in tick charts. Sometimes they result in long wick candles in 1 and 5 minute charts.

As an example, say the market is moving down from a high of $48 (10 minutes ago), and is presently still moving strongly down thru $47.50. Often I'll see large block trades at say $47.80, (where the market was 5 minutes ago) occurring now

Is this a trade that did occur 5 minutes ago, and is only now appearing? I think MM's can arrange large trades directly, and have some limited time to report such trades? In this example, would you consider this bullish or bearish?

Or could this be a trade that did actually just occur? If so, could this be a broker who wants to sell off his shares, and is hitting stops posted by traders who are Short. Would this be legal... is it done? This would certainly be bearish, if so.

This is not simply a big buyer, willing to pay up $.30, otherwise I'd see this in Level 2 and in Time and Sales, I think.

I'd appreciate any insights into what these out-of-market trades could be

Thanks
davez

 

[vorzo]

Thank you for bringing this up, I've noticed these block trades outside the market and was wondering what they were.

The behavior of the respective stock after they occur:
- below the bid they tend to be bullish in the short term
- above the ask they tend to be bearish in the short term

Which led me to believe that they are trades between MMs reported late (you would expect the opposite influence if they were current trades). I haven't quantified the effect on stock price but it has been pretty reliable.

Other insights are appreciated.

 

[Mecro]

It's just institutional desks exchanging blocks between themselves. Most of the time, they want it printed within the market so thats why you see these blocks go off. They call up the MM/specialist and tell him that we have this exchange at this price, can you please print it in the market.

 

[davez]

Quote from Mecro:

It's just institutional desks exchanging blocks between themselves. Most of the time, they want it printed within the market so thats why you see these blocks go off. They call up the MM/specialist and tell him that we have this exchange at this price, can you please print it in the market.

Mecro, thanks for the response
Your answer suggests that reporting their trade is optional (and therefore there is no maximum time before it must be reported)? If optional, why would they choose (or not) to print the trade?

By saying "Its just insitutional desks...." it doesn't sound significant. Yet these large trades often result in large volume in 1 and 5 minute charts. Theory is that price moves with large volume can be expected to continue in the same direction, at least in the short term. If you saw such block trades below the current market (during a rally) or above the market (during a selloff), would you consider them bullish and bearish, respectively?

Regards
davez

 

[davez]

Quote from vorzo:

Thank you for bringing this up, I've noticed these block trades outside the market and was wondering what they were.

The behavior of the respective stock after they occur:
- below the bid they tend to be bullish in the short term
- above the ask they tend to be bearish in the short term

Which led me to believe that they are trades between MMs reported late (you would expect the opposite influence if they were current trades). I haven't quantified the effect on stock price but it has been pretty reliable.

Hi Vorzo, thanks for your response.

My initial thoughts (with the clarification of market direction) agreed with yours:

1. when they occur below the bid (in a rising market), its bullish, and
2. when they occur above the ask (in a falling market), its bearish

This seemed right to me for two reasons
a) the price movement is being supported by volume
b) the out of market trade results in a candle with a large trailing wick.

But that assumes they are late reported trades. And if so, I guess one side of the large trade wasn't quite the 'smart' money.

-------------------
But what if they are current trades? in which case you said you would expect the opposite influence i.e. a reversal in a rising market. I would agree with you if, in a rising market, a large trade occurred at a lower price and I saw a string of sales in T&S, and a large drop in bids in Level 2 - that would signal a reversal. Buy often the above doesn't occur - the big trade just appears out of nowhere, and the inside market does not change. So how has this current trade occurred then?

Would an MM that wanted to sell 20,000 shares, and saw 20,000 shares at 7 price levels below the market pass over the better bids, just to get the size? I guess they could route an order to achieve that in real time. But you or I, looking at T&S would have no way of knowing if that was a real time or a late reported order. An who of these two big players is the smarter - is this a bearish or bulllish signal?

The only other real time situation I can think of is if, in a rising market, a broker wants to make a large buy, and is taking out the stops on his books. I think that is not legal, so maybe it is only conspiracy theorists that say this happens? If it does, that would be bullish.

So we have no way of knowing if the large trade is late or current, and if current, it could be bullish or bearish. So I'm still not sure how to interpret these large trades. I guess as a minimum it alerts you that something is happening.

Further thoughts would be welcome
Regards
davez