Friday, May 25, 2007

Protracted Selling Pressure in the NYSE TICK


We've now seen net selling pressure over the past 20 trading sessions. In my last post, we saw a tendency for the S&P 500 Index to bounce following days of extreme selling pressure in the Cumulative Adjusted TICK measure. Above we can see the S&P 500 Index (SPY; blue line) vs. the 20-day moving average for the daily cumulative Adjusted TICK values. Note that, although we're not far off price highs--despite Thursday's decline--the 20-day Adjusted TICK is at rather oversold levels. This suggests that we've seen protracted selling pressure: something that's far more noticeable in the small cap market than in the Dow or the S&P 500 Index.

Interestingly, going back to 2005 (N = 834 trading days), when the 20-day cumulative Adjusted TICK has been below -150 (N = 71), the next ten days in SPY have averaged a subnormal gain of .07% (37 up, 34 down). That is notably weaker than the average 10-day gain of .39% (481 up, 282 down) for the remainder of the sample.

This result also fits with findings regarding my Demand/Supply Index, which hit lopsided selling extremes on Thursday. Demand closed at 23; Supply ended the day at 210. For readers unfamiliar with this measure, it means that--across the three exchanges--roughly 9 times as many issues closed below the volatility envelopes surrounding their moving averages as closed above them.

When we get such extremes in selling sentiment (TICK) and momentum (Demand/Supply), the tendency is for the decline to continue in the short run, even as downside momentum wanes. It is rare to make a low on extreme negative momentum and then turn on a dime and sustain a bullish trend. More often, we see bottoming action with further price lows and moderating Supply, TICK, and new 20-day lows among stocks. For this reason, I will look for the possibility that any bounce after the selling (per the previous post) will provide an additional opportunity for selling the market and testing recent lows.

RELATED POSTS:

Trading with the NYSE TICK - Part One

Trading with the NYSE TICK - Part Two

Identifying Sentiment Trends with NYSE TICK

4 comments:

The Dude said...

I miss your daily demand/supply information. Do you actually make a study of all the stocks on each exchange? If it's not proprietary, if you wouldn't mind, please explain how you do it.

Thanks,
Matt

Brett Steenbarger, Ph.D. said...

Hi Matt,

I've shared the logic of the Demand/Supply Index, but the specifics of its construction remain proprietary at this juncture. Thanks--

Brett

T. said...

Hi Brett,

How do you reconcile these findings with the findings on "big bear days" posted back in Nov 2006?

http://traderfeed.blogspot.com/2006/11/big-bear-days-what-comes-next.html

As usual, enjoyed reading your recent posts.
T.

Brett Steenbarger, Ph.D. said...

Hi T.,

Great question. Clearly the 2005-present data are showing a different pattern than did the 2003-2006 data. The big bear day of Feb 27th, for example, led to further price weakness before a bull leg ensued.

Brett