Monday, October 20, 2008

Buying Interest in Stocks: Improved, But Still A Mixed Picture


The NYSE TICK assesses, at roughly six second intervals, the number of NYSE stocks trading on upticks minus those trading on downticks. By cumulating the one-minute NYSE TICK values, we can gain a longer-term sense for whether buying (trading on upticks) sentiment or selling (trading on downticks) sentiment is dominating. The cumulative TICK line (bottom chart; blue line above) bottomed with the ES futures (pink line) and, since then, has moved steadily higher as stocks have consolidated. This buying interest is showing up in my indicators; on Monday my Demand Index (an index of the number of NYSE, NASDAQ, and ASE stocks closing above their volatility envelopes) was 98; Supply (an index of stocks closing below their envelopes) was only 6.

As noted in my indicator review, the large majority of issues have rebounded from their lows; on Monday, for instance, we saw 80 NYSE stocks make new 20-day highs and 52 make fresh lows. At the market bottom, over three-quarters of NYSE issues made fresh 20-day lows. In spite of this, the money flow indicator for Dow stocks (top chart) continues to remain negative, as the four-day moving average (pink line) remains well below the neutral zero (blue) level. Money flow is very sensitive to the distribution of large trades transacted on upticks vs. downticks. So far, it continues to tell us that traders in size are hitting bids in Dow stocks more than they are lifting offers. It will be necessary to get those large traders on board if the recent market firmness is to develop into a full-fledged uptrend.
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2 comments:

procol said...

Do you really think the Dow can be up 400 with size hitting the bid? And small lots taking?

I don't trust any readings based on block trades as the black boxes and dark pools obfuscate everything.

Brett Steenbarger, Ph.D. said...

Hi,

No question that dark pools pose a challenge to any volume-based market assessment. Also, note that it's the 4-day MA of flow that is negative, not the one-day reading when the mkt was up 400.

Brett