Thursday, August 10, 2006

Trading With the NYSE TICK

Here's a screen shot from my trade station. It's a little tough to see (click chart for better view), but the red candlesticks are the ES futures, the blue bars are the NYSE TICK, and the yellow bars are ES volume. Everything is in 2-minute increments.

The NYSE TICK tells us how many stocks are trading at their offer price minus those trading at their bid, and the figure is updated several times per minute.

It is a great measure of very short-term sentiment, because it captures the degree to which the broad market reflects aggressiveness of bulls (lifting offers) vs. bears (hitting bids).

Notice above that we make a low with the NYSE TICK dipping to the -600 region (first red arrow pointing up). At subsequent lows, we get higher negative readings in the TICK (next two red arrows). What is happening is that traders are less aggressive in hitting bids during that period. Moreover, volume in the ES is drying up with the selling.

That emboldens the bulls, who begin to lift offers and create an upside breakout in the TICK on increased volume. Catching that development was good for an excellent short-term trade. This setup occurs with daily regularity, as momentum swings from bears to bulls and back again.