Well I asked ChatGPT what rebalancing is all about, and this is...

Well I asked ChatGPT what rebalancing is all about, and this is what it spat back out at me. Dunno if it’s accurate, so DYOR.

Rebalancing on the Australian Stock Exchange (ASX) refers to the process of adjusting the weights of assets in a portfolio to maintain the desired asset allocation. This is typically done by buying or selling securities to bring the portfolio back to its target allocation.Rebalancing can happen for a variety of reasons, including:

1. Changes in market conditions: Fluctuations in the market can cause the value of different assets in a portfolio to shift, leading to a need for rebalancing to maintain the desired risk-return profile.2. Changes in investor goals or risk tolerance: An investor's financial goals or risk tolerance may change over time, necessitating a rebalancing of their portfolio to align with their new objectives.

3. Corporate actions: Events such as mergers, acquisitions, stock splits, or dividend payouts can also trigger the need for rebalancing.

When a significant amount of shares are sold in the course of sales during a rebalancing process, it may appear as if someone dumped a lot of shares because there are not enough buy orders at the price being sold. This can create a temporary imbalance in supply and demand, leading to a sharp decline in the price of the shares being sold.

In such situations, the selling pressure may overwhelm the buying interest, causing the price to drop rapidly. This can create an opportunity for opportunistic traders to buy shares at a discounted price, taking advantage of the temporary price decline.

It's important to note that the appearance of someone dumping shares may be a result of institutional investors or fund managers rebalancing their portfolios, rather than an individual investor making a large sell-off. Rebalancing is a common practice in the financial markets to ensure that portfolios remain aligned with investment objectives and risk profiles.