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Minyan Mailbag: TICK Talk


So, you're saying I have a chance...?


Hey Jason,

"I'm wondering if you can shed any light on the extremely high TICK readings we saw yesterday?"

Minyan Brian


That's been a question I've seen a couple of times. The TICK is widely followed, and for good reason - it's a useful guide on many different time frames.

For those unfamiliar, the TICK is a measurement of how many stocks on an exchange last traded on an uptick minus those that last traded on a downtick. For example, if Microsoft (MSFT) traded at 26.95, then traded again a few seconds later at 27.00, then it would be on an uptick. There are TICK readings available in most quote systems for the NYSE, Nasdaq and Dow.

Watching this gauge gives you a snapshot of (particularly intraday) momentum. When a great number of stocks trade on one side of the ledger, it often gives us clues as to future direction. Since program trading has become so prevalent, we are seeing more extreme TICK readings, more often, but it's still a good thing to watch.

For the NYSE, we rarely see more than 1,300 issues trade on an uptick at the same time. On Tuesday, according to my quote vendor, that figure hit an astounding 1,417, one of the largest in history, and something we hadn't seen since last May (perhaps because it is so volatile, the TICK reading you get from one quote vendor to another can change drastically, so it's best to use only one vendor's readings for historical comparisons).

What might it mean that we saw such a high reading yesterday? Well, I'm not going to guess as to "why" we saw the high readings, and instead concentrate on what has happened in the past when we've seen such a thing.

Typically, when we see high TICKs after a sustained move, it is indicative of an exhaustion phase of the trend, at least short-term, and we often see some backing-and-filling afterwards, or an outright decline. But when it comes after a decline, then it can be a good sign of buyers scrambling to get invested again and lead to further upside.

Tuesday's situation is unique because it is coming after a decline, but is taking us close to new highs at the same time, and we don't really have any precedents for that. In general, whenever we have seen a +1,400 TICK, the next day the S&P closed in negative territory 67% of the time by an average of -0.3%. However, I'm not so certain I would read a whole lot into that because of our current circumstances.

Perhaps the best guide comes from 2003, when we saw a +1,400 print on the first trading day of the year. Recall that this is also when we were coming off the unusual negative end to December, like we are now. That year, we consolidated for a day before enjoying one more push to challenge the recent highs. I think that's about as good a blueprint as any for what we might expect here.

So I can't really say that "this is bullish" or "this is bearish" because I think we're at an unusual juncture right now.

No positions in stocks mentioned.

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