Wednesday, December 07, 2005

The NYSE TICK: Does it Matter?

Readers who also follow the Trading Psychology Weblog know that I track each day something called the Adjusted NYSE TICK. This is the number of stocks upticking minus downticking among NYSE issues, adjusted to create a zero mean. I calculate values on an intra-minute basis and then sum all values for the day to create a single daily figure. This daily Adjusted TICK, summarized each day on the Weblog, correlates highly with price change in SPY: about .75.

Since July, 2003, the average value for the Adjusted TICK is 3.26 (because of the adjustment) and the standard deviation is 527. I took a look at what happens after all days that show an Adjusted TICK reading in excess of one standard deviation. When the Adjusted TICK is greater than 600, the average price change over the next three days is .31% (50 occasions up, 22 down), far greater than the .09% (308 occasions up, 227 down) for the rest of the sample.

When the Adjusted TICK is less than minus 600, the average price change over the next day is -.13% (34 up, 40 down), significantly weaker than the average change of .07% (316 up, 217 down) for the remainder of the sample.

This makes sense, because the TICK is capturing short-term market psychology: the aggressiveness of buyers and sellers in lifting offers and hitting bids. But does the TICK predict those more volatile, trending indices we've been talking about, such as the small- and midcaps? We'll look at that shortly.