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--