Intraday price movements
Intraday signs that a stock is weak
These are some signs based on interpretation of order flow which can tell you that a stock is weak. The opposite of these rules can be used to tell you that a stock is trading strong. Most of these rules apply to stocks that are not too liquid - maybe 500,000 to 1,000,000 shares a day or less.
- If there is a recurring pattern of sell orders coming immediately after buy orders. Sometimes you'll see a stock that just refuses to uptick at all. Every time there is a flurry of 4 or 5 buy orders within a few seconds you'll see a couple of immediate sell orders right after - most times within 1 second of the last buy order. Those little flurries of quick successive buy orders are the times when a stock should be upticking. If it doesn't uptick during those moments then it will have a hard time beginning and sustaining an uptrend.
- If sell orders are pushing down the bid more than the buy orders are moving up the offer. Many times you will see situations where a stock is trading back and forth by going up a couple of cents and down a couple of cents. If the buy orders push the stock up 1 cent at a time but the sell orders push the bid down 2-3 cents at a time then this shows weakness. This "tell" is something you should use when the stock is trading lightly. It shouldn't be used when the stock is trading fast because fast moving stocks can obviously have bigger tick changes as well as change their intraday trend very quickly.
- When the bid should be chasing the offer but it isn't. Sometimes you'll see a stock beaten down intraday and it looks like it may be setting up for a nice 30 minute rally. The stock may be 15.20 bid and 15.21 offer. Then there are a few buy orders come in and push the stock up a few cents to, say, 15.25 bid and 15.29 offer. The bid size is 3,000 shares and the offer size is 100 shares. Here, you would think the bid would move up or someone would jump in front of it considering the stock is upticking and there is decent size at the bid and a thin offer. But if the bid just sits there and doesn't move up then it shows weakness. Many times in this situation you'll see the 100 share offer come down a penny to 15.28 after 20 seconds or so, then after another 20 or 30 seconds it'll come down another penny to 15.27. Then the size of the offer may fatten. This "tell" is mainly used on less liquid stocks. If you have a stock like INTC of MSFT then the bid and ask sizes change a lot every second.
- If a stock's gradual rallies get wiped out quickly. Sometimes you'll see a beaten down stock trading sideways for a few days and you buy it looking for a decent 2 or 3-day jump. But the stock you bought isn't moving up and and you are watching it and beginning to wonder if it won't rebound. After the initial volatility of the first hour of the trading day is gone the stock settles down and is trading at $15.20. The stock moves up to $15.25 after 20 minutes or so and then to $15.30 after another 20 minutes or so. Then up to $15.35 after another 20 minutes. The gains were gradual gains where it took a steady stream of buy orders - without much selling - to move the stock up gradually. Then a few sell orders come in and push the stock down from $15.35 to $15.20 in 5 minutes. I'm not talking about an avalanche of selling - just normal intraday selling.
- When the bid drops on a buy order. This is where a stock is 13.10 bid/13.12 ask. Then the bid moves up to 13.11. Then there are a couple of buy orders at 13.12 and no sell orders but the bid moves down to 13.10. This is is very aggravating when you are watching a stock.
- When you enter a large bid in a semi-liquid stock and it gets sold into. This is where you post a large bid in a stock that doesn't trade much and -- based on the normal volume of the stock -- your order shouldn't be filled too quickly (or at all) but it is. This rule is very reliable. If this happens to you it should make you nervous. You can almost always bet that the stock will tick against you immediately after your order is filled. If this happens to you then it might be best if you cancel your order and take a partial fill and re-enter the rest of the order at a lower price. Or you could even forget about the rest of your order and just trade a smaller position since the stock is looking weaker than you thought.
- Real-life example: McCormick & Schmicks (MSSR)
This happened to me on November 1, 2007. I entered a buy order for 8,500 shares of McCormick & Schmicks (MSSR). I had 8,500 shares bidding at 16.68 and there was only 100 shares at the offer at 16.70. Based on the fact that my bid was much bigger than the ask - and that the stock didn't trade heavy at all - there shouldn't have been too many people selling into my bid. But there were. I was getting filled on 100 shares about every 5 seconds.
As you can see in the record of fills below, I got filled on 4,237 shares at 16.68. After I got filled on all these shares I could just tell that the rest of the order would get eaten up. The logical conclusion I came to was that, if the stock can't hold it's ground with 8,500 shares at the bid, then the stock is not going to hold it's ground with only 100 shares at the bid (which I assume it would have after my whole order got filled). So I cancelled the rest of the order to re-enter the rest of it later. As you can see by the next fill of 2,420 shares at 16.00, the stock dropped 4% in the next two and a half hours, which is a very large intraday move. After getting filled on more shares the next morning, the stock dropped over the next week and a half and I exited the position at 15.30 and took a loss of $8,873.
- When the bid upticks and then is equal to the ask but the ask doesn't jump up a tick. This is where a stock is 14.55 bid/14.56 ask. Then the bid moves up to 14.56 but the ask stays at 14.56. Normally, if a bid comes up to where the ask is, then the ask should tick up. The market theoretically can't have a bid and ask at the same level because those orders would automatically be crossed. This one is pretty reliable.
- When an offer "challenges" a large bid. This is where there is a decent-sized bid and the offer is 2 or 3 cents above the bid. Then the offer ticks down to 1 cent more than the bid. Normally, sellers aren't going to step right in there where they are almost guaranteed to be filled.