How Trade Imbalances Affect Stock Prices

Markets blasted off in the last hour of Tuesday trading, with individual sotcks going crazy, mainly on the back of some very large buy imbalances – although there were some sales as well. For instance, in the last five minutes of the regular trading session, Microsoft Corporation MSFT spiked 1.5 percent on no news, just a buying imbalance, the hosts of Benzinga’s PreMarket Prep show pointed out.

“Order flow moves often get retraces as early as the next morning,” the hosts went on to explain, continuing with the example of Microsoft, which gave back most of the gains posted on Tuesday afternoon before the market opened on Wednesday.

Opposite was the case of Berkshire Hathaway Inc. BRK, which fell about 2 percent in the last minute of trading on a closing sell imbalance. Other companies moving on imbalances on Tuesday afternoon were Pfizer Inc. PFE, NXP Semiconductors NV NXPI and Cisco Systems, Inc. CSCO.

So, one thing is for sure. Imbalances, often generated by large institutional investors buying or selling in the last few minutes of the day, have strong and rapid effects on stock prices, even on large, well-known, widely followed companies. However, in most cases, these moves are corrected in (or before) the next trading session.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.