Ken:
I'll toss in my two cents. Assume the price is at 17 7/16 bid and 17 1/2 offered, with sizes of 520 and 3, respectively. This indicates that there are orders on the book to buy 52,000 shares at the bid, and sell only 300 shares at the ask. Recognize that this is a STATIC picture of the current limit orders on the specialists book.
What moves markets are eager buyers and eager sellers who are willing to give up the spread and place market orders to buy at the ask or sell at the bid. Once a market order for 300+ shares takes out the last order on the ask, the ask price will drop to the next level of perhaps 17 9/16 or 17 5/8. This will open up the likelihood of a new bidder coming in to raise the bidprice to 17 1/2, and so forth as the price of the stock rises.
I think the key to market movement/direction is not just the static orders on the book, but more importantly, the sentiment of the new market order and limit orders which come into the marketplace. The way to detect this is to be watching the CHANGE in the sizes of the bid and ask. For example, assume you check back 10 minutes later to find that the bid size dropped from 52,000 to 18,000 and the ask size increased from 300 to 8,000 => you could infer that market momentum is shifting in a bearish direction, despite the fact that the bid size is still larger than the ask size.
Good Luck,
-Eric |
