Tracking Real Time Market Sentiment Through Buy and Sell Programs

In past posts I've mentioned that I track a basket of institutional favorite stocks and monitor upticking and downticking across the group every minute of the trading day.  The logic is that when large market participants want to buy or sell with urgency, they will lift offers or hit bids across a range of liquid stocks.  This simultaneous upticking or downticking across a range of shares--the execution of buy programs and sell programs--leaves a footprint that provides a very useful view of instantaneous market sentiment.

The top chart tracks sell programs on a rolling one-day basis from October, 2014 to the present.  Note the expansion of sell programs at relative market lows and the diminished level of sell programs at relative market highs.  That is pretty much what we would expect to see.

When we go to the second chart, tracking buy programs, we see the same pattern, however.  At relative market lows, we see more buying activity.  At relative highs, buying dries up.  This is very important.  What makes market lows is that lower prices attract longer timeframe buyers--the ones who execute in baskets.  Volume ramps up at relative market lows because one group of participants is actively selling and another group is actively scooping up the shares now offered on sale.  At relative market highs, nothing is on sale and longer time frame participants are not incentivized to buy.  Total volume dries up.

It is the third chart, tracking the relative balance between buying and selling programs, that tells us who is winning the tug-of-war.  At market lows, sell programs diminish while buy programs continue to fire.  That creates a situation in which buying pressure spikes early in a market cycle.  (Note that this is what has happened recently in the wake of the ECB action).  As a market rise matures, sell programs begin to exceed buy programs and we see the balance between the two top out ahead of price.  The recent significant expansion of program buying suggests that we should see upside momentum from recent central bank actions.

I included the fourth, bottom chart to make a separate point.  Notice in the third chart how we had intensive selling pressure among the institutional favorite shares prior to the recent market rise.  Despite that, the cumulative NYSE TICK (the sum of upticks vs. downticks across all NYSE shares) stayed strong and now has made new highs.  What that means is that we were seeing intense selling (downticking) among the liquid large cap issues, but not across the broad market.  It was that discrepancy that set up the recent strength.

I deeply appreciate the interest readers have shown in the work I have shared.  These are proprietary measures (all data from e-Signal and all calculation and charting done in Excel), but I will update periodically to stay on top of where we stand in market cycles.  I will also be sharing information about the breadth and sentiment measures I track in my upcoming book. 

Further Reading:  A Look Back on a Previous Instance of Program Buying Surge
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