No Rest
Thursday, November 11th, 2004 8:00pm EST
A Serious Bid
Bottom Line: One way to determine how well “bid” the market is, another term for buying pressure, is to watch the TICK. Today it spent barely any time in negative territory, a sign of serious buying pressure.
We post several indicators to the site, both longer-term and short-term, that focus on the TICK on the NYSE and Nasdaq. Today we saw an unusual occurrence in that the NYSE TICK didn’t show a reading below -100 all day long. Such a sustained bid to the market is extremely unusual – it has happened only 19 other times in the past six years.
Perhaps most remarkably, the TICK was below zero (meaning there were more stocks on a downtick than an uptick at that moment in time) for a total of only a few minutes all day. If we look at the total amount of time the TICK spent below zero using 3-minute bars, we see that today there was only one bar where the TICK ventured below the even mark. Since there are 130 3-minute bars in a normal trading day, we can say in a rough sense that the TICK spent less than 1% of its time below zero.
Let’s contrast that to, say, Monday, where the TICK chopped back and forth around the zero line. That day, 83 of the 3-minute bars saw the TICK drop below zero, so we can say that in 64% of the bars we saw a negative reading.
Since the TICK has a positive bias, on an average day the TICK will spend about 40% of its time below the zero line, and 60% above. Anything below 20% or above 60% of the time below zero is unusual.
Today’s 1% reading is highly exceptional. In fact, in the past 763 trading days, it has been exceeded only once – on October 1, 2003. That day, my quote provider shows that there were no negative TICKs all day long, and the S&P never looked back from that point on.
Since the rally kicked off in March 2003, there have been 9 days where the TICK spent less than 5% of its time below the zero line. The next day, the TICK spent an average of 25% of the day below zero – still quite a bit less than an average day. The next day closed higher 5 out of the 9 times with an average return of 0.2%, but three days later it was higher 7 of 9 times and the average return climbed to 1.2%, with the largest loss being a small -0.4%. Twenty days later we still see that 7 of the instances were positive.
While overall NYSE volume was a little below average today, the fact that there was such eagerness to buy as the S&P broke to a new high should be considered at least a short-term positive. Combined with the stats I showed in an intraday note this morning regarding the price pattern the S&P had carved out over the prior four days, it appears as though there may be even more room to run.
Conclusion
I noted last time that most of what I had been pointing out the past couple of weeks had suggested there was a high likelihood of a short-term correction, but that anecdotally so many others thought the same thing that it may be less likely to happen. Since then, our measures have still not gotten a rest. Our short-term indicator score, while technically still on a buy signal, is showing a five-day average value that is lower than any other time except early March 2000. And our AIM model, which monitors the four major sentiment surveys, will likely drop down to 33% this week, the lowest value since late last year, as the Consensus survey showed a huge switch from 24% bulls a couple of weeks ago to 69% in its most recent release. Most of the other surveys are challenging their upper levels of bullishness as well. Also, our Odd Lot Purchase Percentage, showing how much small-trader odd lot volume is made up of purchases, is now giving its second-highest reading in the past 34 years, behind only December 2000.
But still, price is behaving splendidly and I continue to believe it would be a mistake to try to fight this by shorting, in spite of what these measures are saying. There are times when it consistently pays to short higher prices, but I don’t think this is one of them. With the S&P hitting new highs, in November, after a terrible year for most trend followers, there could be a rush into stocks that pushes us higher despite the contrary readings we’re seeing. I moved to a more cautious stance on November 2nd, and with the S&P up 30 points since then with nary a pullback, it is painful to sit on the sidelines. But there will be a better opportunity ahead to establish another low-risk, high-potential position – on either side – and I don’t think now is the time for either. This has been the first real potential “failure” of our measures this year, and as we saw last year, failures to do what has historically occurred can be a very powerful thing.
TO ANY OF OUR VETERANS WHO MAY BE READING THIS, LET ME SINCERELY THANK YOU FOR YOUR SACRIFICES.
Jason Goepfert
President and CEO
Sundial Capital Research, Inc.
Disclosure: no positions
This disclosure is not intended as trading advice in any form. It is meant as a note to subscribers that the author may have a position directly affected by the market outlook reflected in the commentary. Although the author takes great pains to remain objective in any commentaries, it is only fair that readers should know that the author may have taken positions in accordance with his market outlook. Positions can and do change at any time, without notice to the reader.
© 2004 Sundial Capital Research, Inc. All Rights Reserved.