Monday, March 22, 2010

Catching Market Sentiment Shifts With Cumulative NYSE TICK


Note how we opened the day lower, with more stocks ticking down than up in the first minutes of trading. Within a short period, however, we bounced to positive NYSE TICK readings and stayed above the (blue) zero line. When sellers finally did come into the market, we could not get TICK readings below -500 and could not get the Cumulative TICK back to negative. Unable to sustain selling pressure, we saw buyers come into the market with a vengeance.

I find that it rarely pays to bet against the Cumulative TICK line. When TICK readings are mostly staying above zero and cannot reach significant negative levels (-800 or lower), it's difficult for prices to sustain any retreat.

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10 comments:

NQ Trader Jay said...

Yes, that was a very nice gap fill open with follow thru. I sim traded it for a gain. It sure is good to see that after last week's ugliness.

shodson said...

I've tried to trade with TICK but I'm not sure I can use it as a leading indicator, it just seems to sway up and down with the market. Do you guys look for TICK divergence or do you think the TICK truly portends price direction?

nqtraderjay said...

I use TICK a few ways. Support & resistance potential, breakout potential of support & resistance, solidly one sided under or over zero, centered around zero for dangerously non-trending, and no bias stay out when small bars and near zero, and +-1k extremes in any of these are either confirmations of strength or if combined with the tick centered around zero, a likely pull back to other direction for a long time.

Dr Bill said...

S, It's a combo of TICK AND VOLUME. Brett is a user of VWAP because volume-at-price carries with it some "mass". I have MarketVolume's 1-minute volume chart up along with a NYSE TICK 1-minute chart so that I can tell if momentum suddenly develops. When it's the Real Deal, TICK will stick for a nontrivial period of time. I do not use a VWAP chart, but I can get an approximation using my tools. I think the VWAP chart, however, is easier to tell when a shift is going on. I just happen to use numbers for a living.

Now the HARD part (which is why I read Brett's stuff) is putting it together with the whole day's tentative theme, deciding on a trading strategy, and then being prepared to react quickly (over about a three-minute period)should the anticipated day's scenario shift. His use of intermarket trends, his basket of stocks' 20-day HI-LO computation, and all the other cool slides he shows are the result of him never getting any sleep. You ever see the time on his posts? He is committed to being prepared for the opening bell.

No matter, I screwed up this AM, but I'm looking at my 2-day signals and deeper stops to save me. I don't have time to become practiced at the day-trader techniques. I hope you do.
Dr K

nqtraderjay said...

BTW, 3 of the TICK situations I mentioned just occurred right after 1pm. I posted a chart with explanation if anyone's interested. I have the time today to post stuff, I'm only sim trading.... we had extreme, divergence, and pullback after extreme.

TD said...

Shodson, I tend to agree with you. I have been watching it, but it basically seems to be a coincident indicator to me. Price and volume seem to tell the story that Tick is supposed to tell.

shodson said...

I don't get volume either. A big volume move could be an exhaustion or last gasp, or could be a breakout/new trend move. I guess you really need market delta to see if price is hitting the bid or the ask to determine what's going on inside of the volume but large volume numbers themselves just don't get me going either, or I just don't know how to use it properly.

M said...

Sometimes those 1000+ tick readings lead to the exact opposite and the market tanks. Like all indicators, it's so clear after the fact, but not so as it's developing. This is especially the case with momentum indicators. From the March bottom, I kept reading and hearing time after time how we were overbought, the rally was on low volume and therefore a huge correction, perhaps to the March lows was inevitable. Well it never happened and the market had the best rally since before WWII. So price is everything.

Brett Steenbarger, Ph.D. said...

It is the distribution of NYSE TICK readings and not individual readings that is most important in understanding the market. Because it takes institutional activity to push TICK > +800 or < -800, the indicator is an excellent gauge of large trader sentiment during the day. That makes Cumulative TICK a worthwhile trend measure.

Brett

M said...

The example I'm using is at around 1:30pm on 3/17, ticks were in an uptrend, had been above zero most of the day, and ticks had made three consecutive +1000 readings with two higher highs. I waited for a pullback to go long since I thought institutions were buying, but instead, that was the short term top and the ES dropped 7 points.