TAPE READING (chat room cont.)

[ljyoung]

Like a nasty case of Herpes Type II, I'm back again with a request for help from anyone who might be disposed to give it. Attached is this AM's print out (it's not too long) of the NASDAQ/INET T&S for GOOG.
Since it's the premarket there can be no "Market" orders and so my thought was that when there is a "B" it means that a buyer lifts (buys from) an existing sell (which must be the "Best Offer") and when there is an "S" a seller hits (sells to) an existing buy (which must be the Best Bid").
If what I've said is correct is there any way one can determine when a short sale has taken place? There is a 5 minute PV chart which can be used for a visual aid but is not necessary for any interpretation of the data.
When I originally posted (last PM) I did not appreciate that the "B" and the "S" had to be the best offer and best bid.
Is my interpretation of the data correct and if so does my question make any sense?
I do appreciate that the scenario I am presenting is NOT what Maverick talks about in his truly mind-blowing discussion of how he used to trade NYSE stocks.
TIA.
ljy

 

[Spxdes]

lilyoung,

First I dont trade nasdaq so I may not be able to help. If you are just starting to trade, I would seriously suggest you stay away from trading pre-market....

I dont know about other tape readers but I can't trade just by looking at the prints. I would need to see the bids and offers. So I can't answer your question with the time and sales document you provided. Need more info.

As for your previous posts about determining a short entry from a 5 min chart, I don't agree with fast and furious at all. Just because a stock has sold off and there are a bunch of red candles, that doesn't mean that it will continue to sell off or that there is institutional sellers involved. It sounds like you would be chasing a move. If you are gonna tape read, don't focus too much on charts. Use them as a guide to see what the stock has been doing. I mainly just look at charts to see the current trend.

-spxdes

 

[ljyoung]

Thank you spxdes.

I have been trading for a while and have no intention of trading the premarket. It reminds me too much a travelling down some jungle path and falling into one of those pits with sharp, pointy things facing in the wrong direction. My thought was to try and use the premarket as an "entree" into the open and you are exactly correct that what I was trying to ascertain was whether or not big money was showing itself in the premarket in a way I could figure out and use.

My question in particular was whether or not one could determine from the pattern of the quotes, that such and such an entry was a short sell. The 5 minute chart was being used only for purposes of reference.

It seems to me that the premarket (not the postmarket) is an ideal place for big money and the marketmakers to feel each other out. If you look at the quotes they are all over the place. Sometimes with size, other times at the polar extreme with 4 or 7 or 12 shares. I seriously doubt that prints such as these are some innocent newbie trader sticking his or her nose into the hornets' nest.

I have been following GOOG very closely for about 16 months now, have a mountain of data concerning price movements in the various market time zones (preM, ID and postM) and some useful setups but want to make my edge sharper. Hence the attempt to try and more accurately assess what exactly is going on at the individual quote level.

Clearly what I don't know is just how much info a true tape reader needs in order to be able to figure out where size is. Hanging over all of this speculative stuff of mine, are Maverick's statements about market fragmentation and how unless you're dealing with an individual specialist on a single exchange (and figuring out how he works) you can't do an accurate job of reading the tape.

So maybe it's all for naught but I have to ask you folks that know something about tape reading so I can decide whether or not to continue on my current path or just bag it.

Again my thanks for your suggestions.

ljy

PS: Am I correct in my interpretation of "S" and "B" being the "best bid" and the "best offer" respectively?

 

[Huskydog]

Quote from ljyoung:


PS: Am I correct in my interpretation of "S" and "B" being the "best bid" and the "best offer" respectively?

It looks like the document you have included in your post just shows executions. You need to see what the quotes are and how they changed in order to gauge if the subsequent prints could have been predicted by the quotes. When I compared your TOS to the one that I have, it appears that the S means the trade took place at the offer price and the B means the trade took place at the bid price.

Sometimes with size, other times at the polar extreme with 4 or 7 or 12 shares. I seriously doubt that prints such as these are some innocent newbie trader sticking his or her nose into the hornets' nest.

Market makers do not trade in oddlot increments. As a general rule of thumb, oddlots tend to be retail customer participation, and if they are attached to at the end of a larger position, e.g., 2317 shares, the chances are pretty good that the 17 shares was picked up by a trader from a retail customer during the trading day.

 

[Huskydog]

Quote from Huskydog:

Market makers do not trade in oddlot increments. As a general rule of thumb, oddlots tend to be retail customer participation, and if they are attached to at the end of a larger position, e.g., 2317 shares, the chances are pretty good that the 17 shares was picked up by a trader from a retail customer during the trading day.

I should have said that a market maker isn't going to go out and buy an oddlot for his own account. If he is working an order for a retail customer, he would then include the oddlot in his order. The point that I was trying to make is that if a market maker is looking to pick up stock or sell stock in the premarket for his own account, he is not going to settle for 17 shares. He'll be interested in picking up more size than that.

 

[ljyoung]

Huskydog,
After reading your posts I experienced several Homeric moments of "doh!" and this AM did the following:
1. Collected the NASDAQ/INET preM (premarket) data as per usual.
2. Used the IB setup and collected the preM data from its data feed (including the actual B/A quotes - doh!)
3. Found times where it appears the IB and INET quotes are referring to the same trade and noted if the trade came off closer to the bid or the ask. Correlated the IB and INET data sets.
4. Printed out a chart showing the quote data (doh!).
5. Phoned NASDAQ (doh!) and asked them if the INET printout was implicitly saying the trade was executed at "best bid" or "best offer" and the answer was "Yes".
6. Collected the data from 1-4 and put it in an attachment.

There are several questions within the attachment.

As for the "odd lot" stuff my take is this. I am well aware that the "conventional wisdom" is that odd lots = retailers what don't know shit from shinola. What better way to disguise what you, the professional, are doing than to use small lots to try and discover price. I've been looking at this stuff for a long time and frequently (not always) see the odd lots at price extremes. This sort of activity doesn't happen everyday in the preM but it happens a lot.

I've heard it said that, intraday, well capitalized players will "send out" share lots of various sizes to try and ascertain if it's hard or easy to dispose of them and thus get a feel for what a particular price movement might develop into. They don't care about losing some money initially (one description of this activity is "soldiers who don't come back"). This is not exactly what is going on in the preM but the objective is the same,e.g.,
price discovery.

So anyhow that's where things are right now and I really appreciate the feedback I've received from you and other members of this thread. TIA.

ljy

 

[Huskydog]

Quote from ljyoung:

As for the "odd lot" stuff my take is this. I am well aware that the "conventional wisdom" is that odd lots = retailers what don't know shit from shinola. What better way to disguise what you, the professional, are doing than to use small lots to try and discover price. I've been looking at this stuff for a long time and frequently (not always) see the odd lots at price extremes. This sort of activity doesn't happen everyday in the preM but it happens a lot.

I've heard it said that, intraday, well capitalized players will "send out" share lots of various sizes to try and ascertain if it's hard or easy to dispose of them and thus get a feel for what a particular price movement might develop into. They don't care about losing some money initially (one description of this activity is "soldiers who don't come back"). This is not exactly what is going on in the preM but the objective is the same,e.g.,
price discovery.

The SEC has rules about oddlots. If a trader has the ability to send a round lot order, then the trader is prohibited from initiating an oddlot prosition. If a trader picks up an oddlot, the trader is then permitted to send it back into the marketplace to get back to flat. If I want to test a stock, I would have to send a 100 share order. Hope that helps you a little bit.

 

[ljyoung]

Huskydog,

Thank you for the cup of yellow snow. You are forcing me to crank up the market conspiracy scenario and involve outside nonprofessional participants on the payroll of unsrcupulous MM's and specialists.

No, not really but I am going to check with the SEC and see exactly what they say as clearly what you are referring to must have to do only with "in house" professionals and not with the nonprofessional . One way around the rule would be for the MM to send the oddlot, which he picked up from some witless retail type, back to the floor at some "unusual" price (or is there a rule about that also?).

In any case, this aspect of the hypothesis does not affect the other questions which I raised and I would really like to hear what you have to say .

TIA.

ljy

 

[Huskydog]

Hey lj,

No yellow snow from me. Just trying to point you in the right direction where I thought you were off in your idea. Some comments on your 9/27 attachment:

1) The Last Price column on your IB TOS looks like the price where actual trades went off. The Last Size column shows the actually trade size. However, it looks like your IB TOS cuts off the last two digits. So, the 8:22:54 trade for 947 shares show as a 9 instead of 947. This trade went off at 407.45, as shown in the Last Price column.
2) Short Sale Rule A Nasdaq rule that prohibits NASD members from selling a Nasdaq National Market stock at or below the inside best bid when that price is lower than the previous inside best bid in that stock. http://www.nasd.com/Resources/Glossary/NASDW_011153
I think the rule is pretty self-explanatory.
3) I don't think the premarket moves on GOOG could have predicted the move during the regular market hours. The premarket volume was light. If there was a news catalyst in this stock today, the volume would have been heavy before the 9:30 open and you would have had a better chance of reading the direction during the regular market hours.
4) GOOG is a $400 stock. A stock of this price can tick up and down a few points in the premarket and mean nothing at all.
5)

If one looks at the “transaction size” it’s clear that there was lots of buying done from about 8:00-15 with the rest of the preM involved showing selling. How much of the selling were short sales is my question? How can you tell?

I can't tell what were short sales and what were plain long sales. On NYSE stocks, its easy because a short seller must be filled on a +tick or a zero +tick (unless the stock in question is a Regulation SHO stock). The NASDAQ stocks are a different game.

I think the move in the regular session had more to do with the fact that the market was going up due to the fact that the Dow is so close to an alltime high. Of course, there may be other, much better reasons, but that's how it looks to me.

 

[ljyoung]

Thanks huskydog,

It's great to get some knowledgeable feedback. When you say (today anyway) that you couldn't tell, based on what you know, what the early AM move was going to be, it makes the uncertainty more palatable.

Today was an interesting day and one has to think at sometime before the EOM the Dow will set an all-time high. The NASDAQ has been divergent though, so unless it turns around, things could go south. But who knows - you take what you get.

Thanks again.

ljy