Saturday, September 20, 2008

Tracking NYSE TICK and Other Ideas for a Volatile Week

Tricky TICK - Several readers have noted that the cumulative NYSE TICK was persistently positive during the day on Friday, yet the S&P 500 Index could not surmount its opening levels. One particularly observant reader wondered if the abolition of naked short-selling among financial firms might affect TICK. Given that they are among the most actively traded issues of late, they certainly would be expected to impact TICK more than infrequently traded issues. Note how the five-minute TICK values (chart above) consistently stayed above the blue zero line for much of the session. Interestingly, the Dow TICK (TIKI) displayed a similar pattern, especially in AM trading--we didn't get a -20 reading for over an hour of trading. Just as the removal of the uptick rule changed the distribution of TICK in the summer of 2007, I suspect we are seeing an upward shift of average TICK levels with reduced short selling. I'll follow the distribution of TICK going forward and will revert to relative TICK readings (comparing current readings to a lookback average) as a way of adjusting for this shift.

* New Trading Community - I recently received an email from the developers of the Inner8 site, which is developing a community of traders to share trade ideas and analytics based on community recommendations. Readers interested in taking a test drive can use the free access code: 2pccs.

* Perspectives on the Volatile Market - Great post from Trader Mike on picking your spots when short selling. Charles Kirk links a number of informative articles on the government rescue plan and its implications. Abnormal Returns chronicles perspectives on the move to end short selling and the impact of the Fed on option sellers.

* Quick Hits - Banks at the mercy of the stock market; Why the Treasury and Fed had to act when they did; Why the rescue is a bad idea; My Demand/Supply measure of short-term stock momentum hit an upside record level on Friday; Wonder why it seems as though permabear sites are screaming loudest against the rescue plan; Homebuilder shares hit their highest levels since May on Friday after holding well above their July lows on the recent decline.