V.10:12 (521-524): Market Turns And Continuation Moves With The Tick Index by Tim Ord

Market Turns And Continuation Moves With The Tick Index by Tim Ord

The tick index is a little-known indicator that can be used to indicate short-term stock market reversals and provide trend confirmation. Short-term traders should consider using the tick index, for though this indicator does not always tell you a story, it can help alert you to overbought and oversold situations. A little over a year ago, I wrote an article in which I described a buy and sell method using the tick index on the New York Stock Exchange (NYSE). The tick index is the difference between the number of issues trading with the last trade higher (an uptick) from the previous price and the number of issues trading with the last trade lower (a downtick) from the previous price. For example, if exchange X has 500 issues trading on an uptick and 250 issues trading on a downtick, the tick index would be 500 – 250 = 250.

To summarize my method of using the tick index, a buy signal is generated when two intraday 600-plus downtick readings are recorded at approximately the same price level on the Dow Jones Industrial Average (DJIA). These 600-plus downticks should be at least one day apart but not more than 10 days apart. If the market makes a double bottom and the tick index has reached 600 or more downticks at both bottoms, then the second reading of 600 or more intraday downticks is a buy signal. For a sell signal, the reverse is true: When the market is making a double top and the tick index readings on both tops intraday exceed 600, then the second reading of 600 or more upticks is the sell signal.