When Selling Becomes Indiscriminate: What Happens Next?

On Thursday my cumulative Adjusted TICK measure gave a daily reading below -1000. This has only occurred 16 times since 2004. To achieve such a reading, we have to have persistently negative NYSE TICK readings: far below the 20 day average. That means that traders have been hitting bids across a wide range of NYSE stocks--an indiscriminate selling that affects good stocks and bad. Indeed, we saw declining stocks exceed advancers by over 2000 issues on Thursday.

When we've had cumulative Adjusted TICK readings below -1000 in a single day (N = 16), the next three days in SPY have averaged a solid gain of .58% (13 up, 3 down). That is much stronger than the average three-day gain of .10% (468 up, 376 down) for the remainder of the sample.

I will want to see evidence of waning selling pressure--and an inability of negative TICK readings to drive price to new lows--before acting on this pattern. Nevertheless, when selling has become extreme, it's generally been a good idea to look for a bounce. In my next post, I will take a somewhat longer-range perspective on the performance of the Cumulative Adjusted TICK and provide a note of caution.