Who is Controlling the Market?

One of my favorite measures of buying and selling pressure is the moment to moment upticks versus downticks across all listed stocks.  Most of us are familiar with the NYSE TICK measure ($TICK), which tracks the number of stocks trading on upticks versus downticks for all New York Stock Exchange listed issues.  The U.S. TICK ($TICK.US-ST on the e-Signal platform) measure simply extends this measurement to all stocks, and so it is more inclusive of small cap issues.  

Another strength of the U.S. TICK measure is that its opening readings look at upticks/downticks from the opening prices of stocks, not from the prior day's close.  As a result, the numbers are not skewed by the overnight gap in prices:  we get a purer sense of buying and selling flows during the day session itself.

The major value of the U.S. TICK measure, however, is that it tells us who is controlling the market:  the buyers or the sellers.  If we get persistent and high positive readings, we know that institutions are lifting offers across a wide range of stocks.  Conversely, persistent and extreme negative readings tell us that institutions are hitting bids across the universe of shares.  (If your trading platform does not track U.S. TICK, the standard $TICK measure is also quite informative of who controls the market).

Notice on 3/2/18 how the evolving U.S. TICK numbers were positive and got more positive as the morning progressed.  We barely saw any net selling pressure whatsoever.  Even in the afternoon pullbacks, buying and selling activity were only relatively balanced (pullbacks to the zero area) and price held well off the morning lows.  

(As an aside, the outperformance of U.S. TICK relative to $TICK was a nice tell for the relative strength of small cap shares that day).

This ability to see how the tug of war between buyers and sellers is evolving as the market unfolds helps us check our assumptions and adjust to how the market is *actually* changing.  I came into the day with bearish expectations, partly due to our difficulty in bouncing from oversold levels and partly due to the trade war news.  The early strength in buying pressure was a great indication that the market, in fact, was dominated by the buyers.  Sure enough we experienced an upside trend day, where we opened near the day's lows and closed near the day's highs.

Once we can observe the ebbs and flows of buyers and sellers, we're in a much better place to trade what we see and not what we expect.

Further Reading:

Trading the U.S. TICK

Three Questions to Ask About Any Market - most popular TraderFeed post 

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