Friday, May 21, 2010

Sad, Morose and Downright Pitiful

Back in 1967 when I was lad I played banjo in a little bluegrass band back in Binghamton, New York. This was strictly a weekend gig when I was an undergraduate . . a way to meet girls and have some fun without shooting up the neighborhood . . which is what seems to pass for fun these days around here. Our band, The Susquehanna River Boys, sometimes known as The Soon Forgotten, had a limited repertoire which we categorized as either sad, morose or downright pitiful tunes. I am reminded of those innocent times after watching yesterday's action on the NYAD.
Last Thursday I mentioned it was really bad when the NYAD hangs at .13 all day. In that light consider Thursday to be downright pitiful as the NYAD opened at .03, then hung at .04 most of the day and closed at .05, actually higher than to be expected given the closing 30 minute collapse.
Historically speaking this phenomenon occurs less than 1% of the time, the last time being January 8, 09.

The thing I wanted to point out today is the almost 99% reliable trade (Rob Hanna can tackle the history on this one) that set up at yesterday's close. What happened in Thursday's last half hour?
Going back and looking at the tape shows that the problem was there were no more buyers. The bid kept falling away as prices reached the high of the day in many issues. This was the case with the SPY, IWM, DIA and as shown here on the Qs. This was followed by wave after wave of dropping bids and the result was that we closed on the lows of the day . . accompanied by increasing volume and an increasing ATR.
Back in April the DAILY ATR on the Qs was about .50. Yesterday the ATR was averaging .20 on 5 MINUTE BARS and, as shown in the lower panel on the chart technicals, it too was accelerating into the close.
This rush to the exits almost always leaves a lot of folks behind at the close and, as a result, today's opening bar 5 minute (white arrow) was the highest volume bar since the "glitch" on May 6th that produced the near 1000 point drop. And it was a down bar across the boards. There's the point and there's the trade. . close to open short and out. The pattern doesn't setup very frequently (especially over the last year) but when it presents it's worth paying attention.


Brooks said...

Is NYAD the same as the TICK?

bzbtrader said...

No. TICK or $TICK represents the number of stocks ticking up minus the number of stocks ticking down. For example, if the Tick reads +200, then 200 more stocks are ticking up than are ticking down. If the Tick should read -354, then we understand that 354 more stocks are ticking down than are ticking up.
The NYAD or $NYAD is the number of advancing NYSE issues - the number of declining NYSE isues. Schwab presents this value as a ratio (advances/declines), which is the way I use it.
While both indicators are fractal, the tick is a much more volatile indicator and can easily be manipulated by the HFT programs to create the illusion of buying or selling. The NYAD is a much more reliable indication of both relative strength/weakness and momentum. The NYAD is the most important single chart that I watch for daytrading. You can see how I set it up with the parabolics 8/8 channel and SMAs on many of my posts.

Brooks said...

Thanks for replying, Bob.

Hmmm. This is what my broker shows for NYSE indicators:

$ADVN NYSE Advance Issues
$DECN NYSE Decline Issues
$TICK NYSE Issues Up/Down Ratio

They call the TICK a NYSE ratio but apparently its not the same as the $NYAD. I'm still not sure I get the difference ...

Is it that the TICK is that moment of the day and NYAD is since the start of the day?

Brooks said...

I've confirmed that Thinkorswim does not currently support $NYAD. :-(