Friday, March 17, 2006

Closing NYSE TICK: Does It Matter?

Here is the Trading Markets article on Euro currency trading; thanks for the interesting comments.

I decided to take a look at the closing level of the NYSE TICK and whether it has any relevance for the next day's trading. Friday we closed above +900 on the TICK, suggesting broad buying on the close. Indeed, the final TICK number might be viewed as the leaning of traders' market-on-close positions, as they either lift offers or hit bids in stocks.

My first observation, going back to March, 2003 (N = 767), is that there is a positive bias to the data. The average closing TICK value is 452.

When the TICK closes above 900 (N = 82), the next day in the S&P 500 (SPY) averages a gain of .11% (48 up, 34 down). This is stronger than the average gain for the sample of .06% (429 up, 339 down).

When the TICK closes below -200 (N = 43), the next day in the S&P 500 averages a gain of .26% (28 up, 15 down). It thus appears that selling on the close tends to reverse the following day, while strong buying on the close has a moderate tendency to continue the next day.

Combining the closing TICK with momentum measures, such as the Demand/Supply Index, might screen for particularly positive times to buy the market. Another idea would be to track the TICK readings from the final hour of trade and the impact the next day.

PS - Above is Mali, the blind cat we adopted in Syracuse. When we moved to Naperville to a three story house, Mali took a day and a half to find her way around completely. That was before we got our furniture in. She adapted to the furniture in a day. She constantly sniffs as she moves, and her hearing is excellent. She comes running whenever she hears someone visiting us--she loves meeting new people. How many of our senses do we engage in trading, and how much information processing do we lose by being solely dependent upon sight?


John Wheatcroft said...

Sir, you have nailed the forex market to a T. When trading in any market the key factor for the individual should always be patience. In forex that goes doubly so. I think one of the best ways to play this market is to take your trades off when economic announcements are being made and putting them back on once the instrument has settled down. Since there are no commissions involved it is a no cost method to avoid disaster. Also since there is almost always overshooting with the announcements sometimes you can pick up some extra pips playing the overrun.

Good work, Dr. Steenbarger.

Brett Steenbarger, Ph.D. said...

Thank you, John. You're right: there's a fair amount of overshooting in the Euro overall, which is why we don't see nice trending from one period to the next. I have seen traders hurt bad in the currencies when they either leave trades on or orders in the book at those times of economic announcements. It's a challenging trade, to be sure--