Wednesday, May 13, 2009

Distinguishing Buying and Short Covering With Cumulative NYSE TICK

One distinction that can be difficult to make is the one between genuine buying and short covering. I find the NYSE TICK useful for this purpose, as genuine buying will bid up the great majority of NYSE stocks, not just bump the most liquid names higher. (See the NYSE TICK primer for more background).

When we see a buying burst in the ES futures, then, that is not accompanied by a commensurate rise in the Cumulative NYSE TICK, it tells us that the majority of shares are still trading on downticks, even as there is covering among the S&P 500 issues.

Seeing Cumulative TICK fail to budge on market bounces helped keep traders on the right side of the market today, fading those bounces rather than assuming that they were the start of lasting reversals. That was especially helpful during the morning session, when sharp short covering rallies made it look like the bear would reverse, as has happened so often lately.


dan said...

Dr. Steenbarger -- it would be interesting to see the difference between the chart you posted for today's session, and the chart for yesterday's session (when the futures rallied over 15 handles in very little time). Can you provide a link for yesterday's session?



Brian said...

Great chart! Would you mind posting or sharing yesterdays chart of the same? I would assume it is an excellent example of the opposite as we reversed midday and did not stay in a downtrend.

MineDigger said...

Dan and Brian, I have the chart you asked about at hand so have posted it if you want to see, I have posted the 13th (this one) as well as the 12th (yesterday) so you can orient yourselves to the different presentation, see and
I don't find the summed Tick easy to interpret. From these two you can either say that it tends to lag, or perhaps you can say that if a price reversal of more than a few points attracts no more than a flat-lined sum-tick you can think about fading. But then see Tue 11th,, and think again. Either I just don't get it, or maybe $Tick is too polluted.

Brett Steenbarger, Ph.D. said...

Hi All,

I don't have the chart handy, but if you review the data, you'll see that the number of occasions with strong positive TICK in the prior day's session was greater than during the short covering referred to in the post.

That having been said, much of that prior day's bounce was accompanied by modest cumulative TICK, as strong buying alternated with strong selling. I was not surprised when that rally subsequently reversed.