NASDAQ CUMULATIVE TICK

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APPLICABLE TIME FRAME(S):  

SHORT / INTERMEDIATE

UPDATE SCHEDULE:

Each weekday night by 7:00 PM EST

EXPLANATION:

This is a running 10-day total of daily Nasdaq TICK closing readings.  The Nasdaq TICK shows the number of issues traded on the Nasdaq which last traded on an uptick minus those which last traded on a downtick.  For example, if YHOO traded at 12.50 then traded at 12.55, then it would be on an uptick.

GUIDELINES:

This indicator can be effectively used to approximate overbought / oversold conditions.  When the ratio reaches one of the extremes, caution is warranted when trading with the current trend.  For example, if the trend is up and the cumulative TICK reaches +4000, then there is a high probability of at least a short-term retracement.  Overbought/oversold indicators such as this one are most effective when giving contra-trend signals. 

When we are in a clear long-term downtrend and this indicator becomes overbought, then it is an effective sell signal.  Conversely, if we are in a sustained uptrend and the indicator becomes oversold, then it suggests that an upside reversal may be forthcoming.

STATS:

*Standard Deviation.  See below...

68% of readings (1 standard deviation) should be between +50 and +1950

95% of readings (2 standard deviations) should be between -900 and +1950

99% of readings (3 standard deviations) should be between -1850 and +3850

In other words, we should expect a reading under -1850 or over +3850 only between 2-3 times per year.  Since such a reading would be highly unusual, it suggests that we are seeing an unsustainable trend.  These figures assume a normal distribution curve.

ADDITIONAL RESOURCES:

National Association of Securities Dealers (www.nasd.com)

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