Recently we've seen speculation that program trading activity, particularly initiated by Goldman Sachs, has been dominating markets and perhaps contributing to recent market volatility. If program trading is indeed expanding and contributing to volatility, we would expect the volatility of the NYSE TICK (which moves higher and lower as baskets of stocks simultaneously uptick and downtick) to be expanding. At least during 2009, my data show that this has not been the case. The standard deviation of $TICK has not been higher lately than earlier during earlier in the year.
Above we see a one-minute chart for the S&P 500 (SPY) and a moving one-day total of minutes in the market when $TICK is greater than +800 (pink line) and when the moving one-day total has been less than -800 (yellow line). This has acted as an interesting overbought/oversold measure: when we've had a notable plurality of buying or selling minutes over a one-day period, we've seen reversals.
Tracking the number of significant buying and selling minutes as a day unfolds has been a very handy way of gauging the general sentiment toward stocks. A relative absence of significant minutes has suggested a more range-bound, less directional environment. A useful adaptation of this notion would be to define significant buying and selling minutes in Market Delta, based on the proportion of relative volume that occurs at the market offer and bid.
Another pattern I've noticed is that the number of significant buying minutes tends to peak ahead of price: as buying dries up late in a rally, we see fewer very high $TICK readings. Note that the most recent rally has occurred with fewer significant buying episodes.
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