Tuesday, December 08, 2009

$TICKI as a Sentiment Gauge: Dow TICK

Here is a shot of $TICKI--the TICK measure specific to Dow Jones Industrial stocks--this morning. As you can see, it is very noisy, with rapid upticks and downticks. This is because the Dow stocks are relatively actively traded. When Dow stocks are upticking or downticking simultaneously, it is a signal that buy or sell programs have been executed (since Dow stocks are common constituents of the baskets traded by institutions). For that reason, it makes sense to track how often $TICKI is displaying readings of +20 or greater (top blue line) and -20 or less (bottom blue line).

In a trending market to the upside, we'll see many readings of +20 or greater, along with strong NYSE TICK and vice versa. Quiet range markets will show relatively few extreme $TICKI and $TICK readings, as few programs are executed.

Note how, in today's market, we started the day with a number of -20 readings and no readings of +20 or greater. That changed prior to 9 AM CT, with far more of a mix between high and low values. That mix was a good indication that we were not simply downtrending early in the session: the trade became two-sided. Along with TICK and Market Delta, this is a useful short-term sentiment gauge and way of tracking program trading.