Stock Buying Interest: Still a Mixed Picture

The NYSE TICK assesses, at roughly six second intervals, the number of NYSE stocks trading on upticks minus those trading on downticks. By cumulating the one-minute NYSE TICK values, we can gain a longer-term sense for whether buying (trading on upticks) sentiment or selling (trading on downticks) sentiment is dominating. The cumulative TICK line (bottom chart; blue line above) bottomed with the ES futures (pink line) and, since then, has moved steadily higher as stocks have consolidated. This buying interest is showing up in my indicators; on Monday my Demand Index (an index of the number of NYSE, NASDAQ, and ASE stocks closing above their volatility envelopes) was 98; Supply (an index of stocks closing below their envelopes) was only 6.

As noted in my indicator review, the large majority of issues have rebounded from their lows; on Monday, for instance, we saw 80 NYSE stocks make new 20-day highs and 52 make fresh lows. At the market bottom, over three-quarters of NYSE issues made fresh 20-day lows. In spite of this, the money flow indicator for Dow stocks (top chart) continues to remain negative, as the four-day moving average (pink line) remains well below the neutral zero (blue) level. Money flow is very sensitive to the distribution of large trades transacted on upticks vs. downticks. So far, it continues to tell us that traders in size are hitting bids in Dow stocks more than they are lifting offers. It will be necessary to get those large traders on board if the recent market firmness is to develop into a full-fledged uptrend.

Comments

[investor88:]

Good analysis. Short term bulls may have to temper their optimism despite what Warren Buffet, Doug Kass and many other experts saying "cash is trash, buy stocks!"

2008 Oct 21 08:35 AM

[daytrader:]

brett,
a very concise&interestin... article.easy to understand,to the point,not opinated.good luck to you,brett!

2008 Oct 21 08:43 AM

[Smarty_Pants:]

The author brings up a good point which is often overlooked by those advancing tick analysis as a tool for trading.

TICK doesn't imapart any information regarding the size of trades involved. A trade of 50,000 shares hitting the bid is a -1 and a trade of 100 shares hitting the ask is a +1. In the calculation of TICK they offset. In reality there is a world of difference. The 50,000 share sell will do much more to drive the bid lower than the 100 share buy will do to drive the ask higher.

The author is correct to include money flow in his analysis for this reason. Expect event driven knee-jerk reactions in the market for some time to come.

If you feel you must invest, stick with companies with solid earnings paying a good dividend yield and little or no debt and expect to hang on until the market starts to value these sort of companies too. Long term buying simply to chase capital gains at this point is not worth the risk involved.

2008 Oct 21 10:42 AM