A very sharp upward spike in the NYSE TICK is often a sign of buying panic; my general leaning is to sell those moves, as they're often overdone. That led to a nice short trade on Tuesday.
But what if we have prolonged high peak NYSE TICK readings? I went back to 2004 (N = 861 trading days) and looked at all occasions (N = 74) in which the five-day average of the highest TICK reading for the day was above 1300 (as was the case on Tuesday). Five days later, the S&P 500 Index (SPY) averaged a respectable gain of .59% (49 up, 25 down).
Conversely, when the five-day peak TICK reading averaged less than 1100 (N = 149), the next five days in SPY averaged a loss of -.18% (70 up, 79 down).
When the five day maximum TICK reading averaged 1100-1300 (N = 638), the next five days in SPY averaged a gain of .21% (380 up, 258 down).
Interestingly, prolonged buying interest tends to carry forward in the short run, while an absence of buying interest over five days has been associated with subnormal near-term returns. I will be exploring this pattern--especially in light of lowest TICK readings of the day--in a coming post.
NYSE TICK and Momentum
NYSE TICK: Does It Matter?