A +1 on the TICK is a buy order, and a -1 on the TICK is a sell order. In the perfect world, market makers are able to match up every buy order with a sell order and by the end of the day, the TICK has a reading of 0.
This simple concept and TICK chart allow us to peek into the market at a depth that’s normally closed off to amateur traders. It allows us to form a thesis on what institutional traders are doing. The theory is that market makers have no problems matching up buy and sell orders coming from amateurs and most institutional traders as well. However, on days institutional traders are very active, their buying and selling across entire sectors make it too difficult for market makers to match up every buy order with every sell order. As a result, temporary extremes form on the TICK. Anything above 600 or below -600 on the TICK suggests institutional trader activity. Remember, it’s institutional traders that create trend waves in the market that us amateur traders can surf for profits. Amateur traders don’t have the buying power to move markets like institutional traders. For this reason, it’s important to watch what institutional traders are doing in the market.
I have created an animation of last week’s market action in the TICK. This animation shows that institutional selling most likely took place last Monday, May 14 2012, and Thursday, May 17 2012.
In this research report, I then examine the news stories on these two days and make an educated guess at the news stories I think caused institutional traders to sell. I do this to further get inside the minds of institutional traders to learn what they are focusing on.
Here are the cheat notes from my research on the most likely reasons institutional traders sold on Monday and Thursday of last week:
* Monday news that most likely led to sell off
- Greek politics no coalition government likely refusal of further austerity cuts for next EU bailout payment
- Raised probability Greece to leave the Euro
- Moody’s put JP Morgan on review for possible downgrade
* Thursday news that most likely led to sell off
- Jobless claims unexpectedly increase
- JP Morgan losses increase, can’t unwind trade as short sellers move-in
- El Mundo reports run on Spain banks, $1 billion pulled in single day after Moody’s downgrades 16 Spain banks
We can also use the days of institutional selling on the TICK to look at sector performances for those days to see WHAT institutional traders are selling. On Monday, institutional traders primarily sold out of Financials, Energy, and Consumer Discretionary. On Thursday, they mainly sold out of Consumer Discretionary, Materials, Industrials, and Financials.
Song: Could Have, Should Have, Would Have
Artist: Lance Jepsen
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