Saturday, April 14, 2007

TIKI, Inefficiency, and Stock Market Reversals


Friday's AM market: First a volume/momentum extreme, then a price low, then failure of selling sentiment (as assessed by the TIKI, the TICK measure for the Dow 30 stocks; in red) to produce new price lows (ES futures; in blue). Throughout this bottoming process, selling volume dries up. Then buyers are emboldened and lift offers, taking price and volume higher.

In many variations and over different time frames, this sequence of events plays itself out in the S&P emini market. Seeing price, volume, and sentiment on a single screen helps you observe when large sellers are aggressively hitting bids and driving the market lower and when selling dries up and sentiment can no longer produce price lows. The key is observing these sequences so many times that you begin to recognize them as they're forming.

Now I'll get back to the weekend and enjoy some silence. Have a great one--

Brett

6 comments:

Jeff said...

Dr. Steenbarger, could you explain why use Tiki and not Tick, and which chrting software allows you to overlay the ES on the Tiki like that?

Philip said...

See http://www.turtletrader.com/phil.html

Brett Steenbarger, Ph.D. said...

Hi Jeff,

I wanted to show that these patterns show up across a variety of sentiment based measures, including TICK, TIKI, and Market Delta. I use RealTick to overlay the indicators.

Brett

Brett Steenbarger, Ph.D. said...

Thanks for the link, Philip. It's an important point. The simplicity that results from an expert's pattern recognition is very different from the simplistic formulations utilized by novices.

Brett

Dave Johnson said...

Hey doc:
That 10:15 low is exactly where I entered my scalp trade of the day. I also noticed the NQ was getting a tad more interest.
http://thetradingdigest.com/blog/2007/04/13/live-trade-041307/

Oh man my wife almost convulsed of of seeing her Depeche Mode messed wit.....
Dave

Brett Steenbarger, Ph.D. said...

Very nice, Dave! It's interesting how traders, using different methods, can arrive at similar trades.

Lacuna messing with DM? Please pass this along to your wife:

http://www.youtube.com/watch?v=e7y4YeZnkxo

:-)

Brett