Monday, November 05, 2007

NYSE TICK and Intraday Market Movement

Recently we looked at stock market volume and its relationship to intraday market movement, including the likelihood of hitting particular price targets. In this post, we'll examine the NYSE TICK and its relationship to intraday price behavior.

Recall that the TICK is a moment-to-moment measure of buying and selling sentiment. It measures the number of NYSE stocks that are trading at their offer price minus those trading at their bid. When buyers are eager to own stocks, they're willing to "lift the offer" and the stocks will transact at that offer price. When sellers are eager to bail out on stocks, they're willing to "hit the bid" and the stocks will transact at the bid price. A very positive or negative NYSE TICK number reflects broad buying or selling interest in stocks overall.

My Adjusted TICK measure updates the 20-day average NYSE TICK reading each minute of each trading day and subtracts that average from each new minute's reading. The Adjusted TICK thus tells us if the current TICK readings are above or below their 20-day average. When we add all the Adjusted TICK readings during a market day, we get a single number--the Cumulative Adjusted TICK--that tells us how much buying or selling interest (relative to the 20-day average) we've sustained.

Going back to July, 2003 (which is when I began collecting my Adjusted TICK data; N = 1094 trading days), we've had 299 days in which the Cumulative Adjusted TICK has been above +300; 255 days in which it's been between zero and +299; 251 days in which it's been between -300 and -1; and 289 days in which it's been less than -300. For labeling purposes, I will call these Groups I, II, III, and IV.

Here are the odds of hitting the R1 pivot-derived resistance level for SPY as a function of Group. The second group of numbers (in bold) show the odds of *closing* above R1:

Group I: 238/299 - about 70%; 186/299
Group II: 150/255 - about 60%; 66/255
Group III: 90/251 - about 35%; 20/251
Group IV: 73/289 - about 25%; 4/289

Here are the odds of hitting the S1 pivot-derived support level as a function of Group. The second group of numbers (in bold) show the odds of *closing* below S1:

Group I: 40/299 - about 13%; 4/299
Group II: 80/255 - about 30%; 10/255
Group III: 132/251 - about 55%; 57/251
Group IV: 225/289 - about 80%; 166/289

I also have data on the frequency with which we hit and close above/below the previous day's high and low prices as a function of Group. The data for those look very similar to the above data.

Clearly, the tendency of market participants to hit bids or lift offers during the day is well correlated with directional price movement. We are most likely to close above or below the target R1/S1 levels on very strong or weak Cumulative Adjusted TICK days.

Once again, these are correlational data only; we're looking at how Adjusted TICK is associated with price movement; how today's Cumulative Adjusted TICK correlates with today's price behavior. What we're finding is that volume tells us about how much movement we're likely to have; TICK tells us how much price directionality there's likely to be. The two together, as they unfold during the day, help us understand the type of day we're likely to get. More on that in my next and last post in this series.

RELEVANT POSTS:

Cumulative TICK as a Measure of Sentiment

Identifying Sentiment Trends With TICK
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4 comments:

Jeff Pietsch CFA, Esq said...

So is the cumulative TICK a leading variable/ predictor (i.e. stats are for TICK[-1]) or is this data coincident/ same day. Thank you for the clarification. Apologies if its in there and I missed it. Jeff

Jeff said...

Dr. Brett, I wonder if you might find it interesting to try to get some insight from your research into the TICK as to what happens between the open and the close. If such inference can be made it would be very valuable to intra-day traders. What I mean is, it is quite possible for the market to close below S1 and still be in a more or less up trend most of the session, or at least a great de4al of it (or the other way around).The daily directional price movement does not necessarily correlate with intra-day price movement.

Brett Steenbarger, Ph.D. said...

Hi,

We're looking coincidental data for TICK and price change. Thanks--

Brett

Brett Steenbarger, Ph.D. said...

Hi Jeff,

Yes, the adjusted TICK does correlate quite well with open to close behavior and also helps identify trend days.

Brett