We've now seen net selling pressure over the past 20 trading sessions. In my last post, we saw a tendency for the S&P 500 Index to bounce following days of extreme selling pressure in the Cumulative Adjusted TICK measure. Above we can see the S&P 500 Index (SPY; blue line) vs. the 20-day moving average for the daily cumulative Adjusted TICK values. Note that, although we're not far off price highs--despite Thursday's decline--the 20-day Adjusted TICK is at rather oversold levels. This suggests that we've seen protracted selling pressure: something that's far more noticeable in the small cap market than in the Dow or the S&P 500 Index.
Interestingly, going back to 2005 (N = 834 trading days), when the 20-day cumulative Adjusted TICK has been below -150 (N = 71), the next ten days in SPY have averaged a subnormal gain of .07% (37 up, 34 down). That is notably weaker than the average 10-day gain of .39% (481 up, 282 down) for the remainder of the sample.
This result also fits with findings regarding my Demand/Supply Index, which hit lopsided selling extremes on Thursday. Demand closed at 23; Supply ended the day at 210. For readers unfamiliar with this measure, it means that--across the three exchanges--roughly 9 times as many issues closed below the volatility envelopes surrounding their moving averages as closed above them.
When we get such extremes in selling sentiment (TICK) and momentum (Demand/Supply), the tendency is for the decline to continue in the short run, even as downside momentum wanes. It is rare to make a low on extreme negative momentum and then turn on a dime and sustain a bullish trend. More often, we see bottoming action with further price lows and moderating Supply, TICK, and new 20-day lows among stocks. For this reason, I will look for the possibility that any bounce after the selling (per the previous post) will provide an additional opportunity for selling the market and testing recent lows.
RELATED POSTS:
Trading with the NYSE TICK - Part One
Trading with the NYSE TICK - Part Two
Identifying Sentiment Trends with NYSE TICK
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