Thursday, March 20, 2008

The Breadth and Depth of Short-Term Market Sentiment

My most recent research has led me to investigate the relationship between the NYSE TICK and the Market Delta readings for a given period of time. We can think of TICK as capturing the breadth of sentiment: it tracks how many stocks are trading at their offer price vs. their bids. Market Delta, on the other hand, tracks what we might call the *depth* of sentiment: the intensity of buying (volume at offer) vs. selling (volume at bid) for any given instrument.

What I'm finding is that the relationship between the two provides useful information that is not apparent from either one by itself. For example, when we have dominant selling in the ES futures that is not matched by particularly negative NYSE TICK, this selling tends to be reversed. Conversely, trending markets tend to see the two measures traveling in unison.

From a statistical vantage point, the operative question is: What is the expectable value of NYSE TICK for a given Delta reading in ES (and vice versa)? When is the relationship between breadth and depth of buying/selling behaving normally, and when is it out of whack?

It appears to be the out-of-whack occasions that provide the most valuable signals. More to come.

RELATED POSTS:

Trading With the NYSE TICK

TICK and Market Sentiment

Analyzing Market Volume

Tracking Large Trader Behavior
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2 comments:

katallaxia said...

Brilliant.

TTmarun said...

great observation Brett,

seems the difference is when ticks are not making lower lows when market delta is showing large selling. Price reverses...

Why?

smart money is sitting on the bid using limit orders to buy or absorb the selling.

both the selling (hitting the bid) and the buying using limit orders (sitting on the bid) look the same on market delta and looks like large selling is occuring when in fact it's just the opposite.. if $ticks are not making lower lows.

Using the $ticks (not making lower lows) to get an early read is a great observation on your part... thanks JT