Below is a Q & A quote from Bright Trading: I have read other similiar articles.
How do you interpret the before-opening imbalances, as there is no share imbalance showing? How do I deal with a stock imbalance on the opening stock? If I see an opening imbalance, and it is the same number as the ask price, how should I interpret this? Thanks -- John
You are seeing an opening indication, not imbalance (imbalances come out at 3:40 pm [ET], except for option expiration day, when we see the shares sizes pre-opening). The specialists are simply putting out an opening range estimate -- this is done when they think the stock may open 35 cents or so away from the previous day's close.
The only day we have opening imbalances (shares) is expiration day. The rest of the time we have opening indications (price, not shares). Let me explain a bit further: The NYSE specialists receive many orders prior to the opening each day, both buys and sells, with limits or simple market orders. After reviewing these orders carefully, they project the approximate range for the opening price. If they anticipate a price more than 35 cents or so away from the previous day's close, they generally post the expected opening price range a few minutes before the opening.
We should all be aware that morning indications are giving us price ranges. MOC (market on close) imbalances are giving us actual share sizes. At 3:40 pm the specialists review all their MOC orders, match up the buys and sells, and let us know how many extra shares are either bid for or offered for sale. This imbalance is updated once again at 3:50. In both situations, the specialist is basically looking for assistance in equalizing the shares to provide an overall better price for both sides of the trades.
