Thursday, May 24, 2007

Capturing the Intraday Trend with the Cumulative Adjusted TICK

Here we see the ES futures for 5/24/07 (blue line), a one-day cumulative total of the Adjusted NYSE TICK. Recall that the Adjusted TICK is the one minute NYSE TICK minus the average TICK level over the past 20 trading sessions. When the cumulative total slopes downward, we know that we're getting above average selling interest (hitting of bids) across the NYSE stock universe.

Note at point (1) that, despite the early rise in ES, we never saw above average TICK readings. That was our first clue that buyers were not aggressive in the market. We then saw above average hitting of bids and a reversal of ES, with price declining below the open.

Observe at points (2) that bounces in price were not accompanied by significant bounces in the Adjusted TICK: buying remained below average. The general rule during such occasions is to sell these bounces, as they represent short covering and not an influx of fresh buying. This principle would have kept a trader short through much of the decline.

We did get a bit of a bounce in the Adjusted TICK in midafternoon, but note at point (3) that the pattern of lower cumulative readings at price bounces reasserted itself. This led to fresh selling late in the day.

Very, very often I find that following the slope of the cumulative Adjusted TICK line keeps me on the right side of the market. My worst trades have occurred when I've bucked the trend of buying and selling interest.


Identifying the Trend of Sentiment With NYSE TICK

What You Can Learn From the Opening Minutes of Trading