Friday, May 08, 2009

Using the Daily Distribution of TICK to Gauge Institutional Sentiment

Here's a nice example of how the distribution of the NYSE TICK can help you identify whether buyers or sellers are dominant during the day session. The candlesticks represent five-minute TICK values through the day; the middle green line is the zero line (the point at which an equal number of stocks are trading on upticks vs. downticks); the blue line is a moving five period average of the high/low/close values for TICK.

Note that the five-minute average for TICK stays above the zero line for almost the entire trading session, indicating a skew toward buyers (stocks trading on upticks) vs. sellers.

Much of that skew, as noted in the day's Twitter comments, was due to the absence of strong selling pressure. The top green line at +800 represents roughly one standard deviation above the mean TICK value; the bottom green line at -800 represents approximately one standard deviation below the mean. Note that we had numerous positive readings above +800 (significant buying pressure), but none below -800.

Where I'm finding Twitter most helpful is as a heads up for market observations that might otherwise slip the notice of short-term traders caught up in the price action of the stocks and instruments they are trading. Knowing that institutions were not participating on the downside was useful in trading today's market, keeping traders from overstaying their welcome on the short side. (Subscription to the Twitter feed via RSS available here).