Closing TICK As a Sentiment Tool

There is an indicator known as TICK, which measures the difference between the number of stocks going up at any moment versus those going down.  In effect, it is like a momentary Advance-Decline difference.  It also has an interesting use as a sentiment indicator.

Peter Eliades shared this with me years ago.  The idea is to look at the daily closing value of TICK, because it can tell us about the supply-demand imbalance among stock trade orders marked as “market on close” or MOC.  That is a trade criterion set by investors who want to have the closing print price for their trade, and is usually a function used by only the big money institutions.  Where there is an imbalance, it can inform us about the urgency that traders are seeing about needing to get invested, or to get out.

The daily data are noisy, and so Eliades found that a 10-day simple moving average worked well as an effective smoothing agent.  Others may work as well, but there seems to be something important about that 10-day period.  When this 10-day SMA gets up to a high level, it can mark a sentiment extreme befitting a price top. 

Low levels are also useful, but readers should understand that these data have a positive bias, and so marking where “low” is should not be done with the same numerical threshold used for “high” values.  Using data since 1998, the average daily closing TICK value is +290, illustrating that positive bias.  In recent years, any reading for the 10MA above around +300 has been a good area to look for a price top, and going below the zero line is where bottoms are formed. 

One last point about the data is that the TICK values published by different data vendors vary somewhat.  When the closing TICK varies, it can be a case of a difference in data vendors selecting the exact moment of the 4 PM “close” to mark the cut point on the Consolidated Tape System (CTS) data feed. 

The robust rally in mid-February 2016 has pushed the TICK’s 10MA up to its highest reading since late 2014 (just off the left end of the chart).  The message is that traders were a bit too eager in chasing that countertrend rally, and so the stage is set for the next leg down.