Tuesday, December 01, 2009

Sentiment Leads Price: Another Look at Cumulative NYSE TICK

Here is my chart of SPY vs. Cumulative NYSE TICK as of the time I received an email from a reader/trader opining that stocks were "topping out". It was ironic that he sent the email at that time, because I had just committed to the long side on a trade.

To be sure, if you just look at price (blue line), you could make the case for a topping market. You might even see a head-and-shoulders pattern in the day's action.

Of course, you could probably see similar formations in the passing clouds...

What was important was that buyers were in control during the session to that point. We know that because more stocks were upticking over time than downticking; stated otherwise, we were seeing more lifting of offers than hitting of bids across the broad NYSE universe.

By cumulating NYSE TICK values (see earlier post for the formula), we can see the trend of intraday sentiment. That led me to expect a break to day highs and test of the bull highs. Many times, TICK will lead price, as price follows sentiment. More on that shortly.