EWT takes a look at Tick Readings.
Excerpt from The Elliott Wave Theorist March 2003:
Ticks-Tock, Tick-Stock
The “tick” reading is a real-time market indicator that shows the net total of the number of stocks last traded on an uptick minus the number last traded on a downtick. Watching the market in recent years, I got the feeling that “ticks” have been running higher than they used to run. I decided to check it out.
The CQG data on ticks goes back to late 1987. A review of the data reveals some interesting information. For the 13 years from 1988 through 2000, only 19 months out of 156 (12.2%) ever saw the tick get above +1080. From January 2001 into March 2003, 27 months out of 27 (100%) have seen it happen. This is a 9-times rate. I interpret this data to mean that since the market started down in earnest, there has been at least one substantial buying panic each month. This is in contrast to the bull market period, when people rarely felt such an immediate urgency to get into the market.
The weekly data are even more lopsided. For the 13 years from 1988 through 2000, only 24 weeks out of 681 (3.5%) had a tick reading higher than +1080. From January 2001 through the week of March 14, 2003, 71 weeks out of 114 (62%) exceeded this number. This is an 18-times rate. The biggest year for weekly ticks above +1080 during the bull market was 1998 (with a total of 8), the year that the advance/decline line peaked. The second two biggest years were the flanking years 1997 and 1999 (with 5 apiece). 1997-1999, obviously, was a period of historically bullish emotional excitement. Yet as you can see in the tally of the number of weeks with high tick readings, the frequency of intense buying on a weekly basis leaped way above that rate in 2001 and has steadily increased each year since. Measured by ticks at least, propensity to panic into stocks has surged to many multiples of what it was even as the top was being formed.
Table 1: Number of Weeks When Tick Exceeded +1080
2003 43 annualized (9 through March 13)
2002 38
2001 25
2000 0
1999 5
1998 5
1997 5
1996 2
1995 1
1994 1
1993 0
1992 0
1991 0
1990 0
1989 1
1988 1
Now let’s look at negative ticks. From 1994 through 1999, there were 41 months out of 72 (56.9%) in which ticks reached at least -1225. Since 2000, there have been only 6 months out of 38 (15.8%) that did so. This is less than one-third the rate.
The weekly figures reveal about the same rate difference. From 1994 through 1999, there were 70 out of 315 weeks (22.2%) in which ticks reached at least -1225. Since 2000 and through the week of March 7, there have been only 10 weeks out of 167 (6.0%) that did so. This is also less than one-third the rate.
Table 2: Number of Weeks When Tick Exceeded -1225
2003 0
2002 3
2001 2
2000 5
1995 3
1994 5
1998 19
1997 14
1996 11
We can see that volatility increased in 1997-1999, because both positive and negative tick occurrences were higher than in previous years. The big change, though, is in the direction of the readings since 2000. One might have thought, given the change to pricing stocks in decimals rather than fractions, that both readings would have gone way up because it is easier for a rush of buying or selling to move stocks a smaller amount to effect an uptick or downtick, but that is not what happened. Since 2000, the number of big negative tick readings has subsided to nothing, while the number of big positive tick readings has soared.
What is going on? I think the change is psychological and supports observations of investor behavior. During a bull market, investors are prone to panic out from time to time because the Wall of Worry requires it. When there is no longer any worry, there is no more upside potential. During a bear market, investors see prices as “cheap,” they are convinced that the market could explode on the upside at any time, and they are deathly afraid of missing the big gains to come. For that reason, there are numerous times when they feel they must get in now. Thus, they are much more prone to buying panics. This change in attitude has kept the bear market alive because bear markets slide down a Slope of Hope. When there is no longer any hope, the market is at a bottom. With respect to this study, then, we can postulate that the bear market will not end until negative tick readings outweigh positive tick readings for an extended period of time as investors finally give up hope and capitulate.
The market has lost half its value during three years of intense buying sprees that have jammed tick numbers up. How much does it stand to lose when ticks turn turtle? |
