Thursday, July 26, 2007

NYSE TICK Distribution and a Bear Market Day

I'm writing this early in the afternoon on Thursday, July 26th. The S&P 500 Index has been down by over 50 points during the day thus far, making it one of the weakest days we've seen in quite a while. The chart above shows the distribution of the NYSE TICK during the day, with a blue, horizontal line at the zero level. That zero level has been a mean value for the TICK ever since the repeal of the uptick rule changed short sales and led to a downward shift in the TICK (reflecting the ability of sellers to hit bids).

You can see from the chart that the distribution of TICK values below the blue line is much greater than that above the line. That is also reflected in NYSE Advance-Decline figures that went steadily downhill over that period. Clearly, it is dangerous to go bottom fishing when you see large traders persistently hitting bids and keeping the TICK negative. Indeed, as I've emphasized in my intraday comments, selling bounces during such periods of risk aversion has been the best strategy of all.

The takeaway is that sentiment matters. A large move can get larger when sentiment becomes highly one-sided. Trying to anticipate a shift in sentiment risks catching the proverbial falling knife. Waiting for that shift to materialize and riding it while the other side is frantically covering positions is a far more promising alternative.

5 comments:

Brandon Wilhite said...

Currencies were quite volatile today also. USD/JPY moved 3x it's 20-day ATR today. I can't help but think there's a lot of feedback going on in the markets right now. I know the US equity markets have been volatile lately, and I think that has fed into this. Then between last night and prior to today's NY open some of the currencies made some large moves...I wonder how that's fed into the US equity markets today.

BW

hrgreen said...

Hey, just wanted to thank you for your blog, reading it has been extremely helpful, and today I had an entry in my blog that I am proud of... this is such a fun way to make a living... (the personal growth side is fun) .. If you have a minute to read it, thanks HR

Brett Steenbarger, Ph.D. said...

Yes, Brandon, there is major shifting of assets among large institutional traders. Equities are just one piece of that puzzle. Tracking currencies and rates has been very helpful of late. Thanks for the note--

Brett

Brett Steenbarger, Ph.D. said...

Hi HRGreen,

Thanks for the feedback. Do send along your URLs for blog posts!

Brett

hrgreen said...

I thought you might find this blog post interesting, and hopefully you will tell me: good going you are on the right track...

http://59-cedar-st.blogspot.com/2007/07/no-trades.html

Of course if im out in left field, I can take it...

HRGREEN