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Chimera Investment Corporation Message Board

  • yahutag yahutag Jan 11, 2013 5:00 PM Flag

    Today's chart pattern

    I'm pretty sure that today's chart pattern was caused by dark pool trading.

    A few days ago, the WSJ ran an article on the intention of the SEC to investigate stock price manipulation in connection with dark pool trading. Here's one of the ways I believe it's done.

    For nearly the entire day today, the number of shares offered at the asking price was about eight times the number of shares at the bid price. I'm thinking someone put in a large order to purchase at one or many dark pools, and also placed a large sell at 2.80 on the public market.

    Most dark pools automatically match buy and sell orders at the average of the bid-ask spread. As a result, any orders to sell in the dark pools would have automatically been triggered at $2.795. Most dark pool sales are posted within two minutes, so we kept dropping back to that $2.795 price. It would then bounce back when buyers on the public market made a purchase at the $2.80 offer price, but there were sufficient sell orders to cap the stock price.

    Depending on the relative number of buys and sells on each market, the trader engaged in this operation would have ended the day with more, less, or the same number of shares. A very large sell order, as we had today, would have discouraged buys and encouraged sells to help achieve the balance between buys and sells that the trader desired. The large excess of sell orders makes me think the dark pool trader ended up with a net gain in shares.

    This kind of pattern has appeared before, always accompanied by a large excess of sell orders on the public market. We can only guess what would have happened today without the excess of sell orders we saw. With anticipation over the release, the price may have risen ten or twenty cents as the upward move was able to gain momentum. For the stock price to have risen four cents today there would have to have been an excess of buyers over sellers, so I have to conclude that the large number of sell orders was synthetic.

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