is the buy sell ratio relevant

Is the Buy:Sell ratio relevant?

The Buy:Sell ratio is the ratio of the number of shares sought divided by the number of shares offered. The ASX has been aggressively purging bids and offers that are too far from the current price which is a real boon for those who follow this ratio. No longer can those wishing to influence traders post bids for millions of shares at ridiculously low prices eg 1 million shares at 0.001¢ was popular.

The formula the ASX appears to be using is:
The day’s highest price times 1.55. For DYL it is 0.45 x 1.55 = 0.6975 (highest current offer is at 0.68)
The day’s lowest price divided by 1.55. For DYL it is 0.435 / 1.55 = 0.28 (lowest current bid is 0.28)

The ASX appears to accept bids and offers outside this range, but purges them after the day’s high and low is set. Purge usually happens a couple of hours after the day’s close. Commsec seems to limit bids and offers in real time, but I don’t know if their formula is the same as the ASX’s.

We can now talk about buy sell ratios and know that they are not artificially elevated, well, not as much as they were until quite recently.

The Buy:Sell ratio does not predict the rise and fall of a security on a particular day, but does predict the trend assuming that the company announces no news (or that there are no widely believed rumors). The ratio can change within a few hours when really good news is announced or anticipated.

If there are more buyers than sellers then buyers are in a bidding competition with each other trying to attract the few buyers attention. If there is a price fall then we expect to see few sellers between the new low price and the previous higher price – buyers will snap up those shares forcing the price up.

If there are substantially more shares offered for sale than sought by buyers, then there is competition among sellers for those bids and this forces the price down. If there is a price rise then one generally sees very little support between the new higher price and highest substantial bidder before the rise, so buyers soon snap up the few bids and force the price back down again.

We saw something similar in DYL over the past few days as the price rose but it was not followed up with buyer support, so the price fell again. The price before the rise was $0.425, which is where buyer support can still be found. There are only 17,900 shares sought at $0.430 and then it will be back down to $0.425 where there are 275,900 shares sought.

So how has DYL been doing lately and what does the Buy:Sell ratio tell us? Let’s look at the end of day results for the last couple of weeks.

Friday 0.81

Monday 0.64
Tuesday 0.52
Wednesday 0.46
Thursday 0.387
Friday 0.277

Monday 0.256
Tuesday 0.22
Wednesday 0.264
Thursday 0.308 (today ie 3.62 million shares sought, 11.76 million shares offered)

From the low on Tuesday it has been recovering, but not enough to stop the downward trend. When the Buy:Sell ratio reaches 0.50 I’d expect to see the price flatten out with good opportunities for those who want to buy and sell within a day or two. When the buy sell ratio moves up to 2.0 I’d expect to see it rise consistently.

I’m just learning these tricks myself, which is why I’m giving away my advice rather than charging for it. I could be wrong (time will tell), but Buy:Sell has been useful to me recently, and maybe it will prove useful to you also.

 

RoberT