Most users and readers that see or use Mr. Top Step’s Market Imbalance Meter — what we call the “MiM” — tend to use it near the open and the close. However, it can also be used for playing a month-end rotation.
Generally, the MiM is used for finding the overall market’s daily imbalance. That is, which way the orders are leaning as we near the close. Is the market “big to sell?” Will there be “a big flip to buy in the final 10 minutes?”
The MiM was an important tool for traders just a few weeks ago. While Mr. Top Step’s Danny Riley called out the bottom in the ES within two minutes and two points, the MiM helped confirm the move he was looking for; it provided the confidence bulls needed to press their longs into the close.
Danny Riley is Mr. Top Step’s 39-year veteran of the CME trading floor and ran one of the largest S&P desks on the floor. Here’s what he’s thinking each morning before the stock market opens.
But there’s a different use for the MiM too, which is playing the month-end rotations. Everyone knows that when the S&P 500 or the MSCI funds rebalance, there’s going to be a massive flood of buy and sell orders.
In some cases, you know what stocks will be added or dropped. But it’s hard to gauge on the fly. Or is it?
Trading the Month-End Rotation With the MiM
The MiM doesn’t just give us the aggregate imbalance of orders, it gives us the top 10 symbols on both the buy side and the sell side. The above order chart shows a massive imbalance on a number of these names.
An imbalance of $400 million on a single stock? Sometimes the MiM for the whole market is $400 million. That gives some perspective on what’s possible with individual stocks. That number is going to move these names, even if the opportunity only comes a few times a month.
Just look at some of these late-day spikes we saw in Disney, Tesla, Kimberly-Clark and JPMorgan. Morgan Stanley and Moderna (not pictured) also gave us some pretty good spikes too.
Now on the downside, notice the same thing. On the chart above, I showed a bit into the next session, just to highlight the magnitude of the move.
On the chart below, I only showed up until the close, which gives you an idea of how these names finished the day. I remember that awful feeling of seeing my stocks puke at the end of the day and not knowing what the cause was or if they would recover in the next session. Now I have a much better understanding of what’s behind some of these move — the curtain has been pulled back a bit.
As we all know, there’s no crystal ball when it comes to trading stocks, options or futures. But the Market Imbalance Meter may be as close as it comes. Knowing how the “Big Money” is placing its bets can give our trading room a big wave to ride — or a warning sign to stay out of the water. Come check it out now, risk free for 30 days.
Generating Alpha
If you look at our regular MiM closing reports — which can be found here — most do not have such large imbalance days. However, if it’s a month-end rotation session for a large fund (like the MSCI in this case), you better believe there’s the potential for hundreds of millions of dollars to flow into or out of these individual names.
Knowing which names are going to see that type of aggressive flow in the final 10 minutes of the day is highly valuable, as you can see on the charts above.
It’s not hard to look at a chart of eBay or Kimberly-Clark and explain the big move by saying there was almost $300 million to buy or sell in just a few minutes.
It’s not a daily strategy. But a month-end rotation is no joke. And if trading some of these moves isn’t in your arsenal, that’s fine! However, it at least helps to know what’s going on and it’s one way the MiM can help do just that.
Come on — check it out now. Like we said, it’s risk free for 30 days.
