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Using NYSE TICK as a short-term indicator has increased my trading P&L significantly.  NYSE TICK represents the number of stocks on the NYSE ticking up minus the number of stocks ticking down. Utilizing the TICK gives me the confidence to pull the trigger on suspected highs and lows, remain in anxious trades and exit deteriorating trade.    

Ways to use TICK:

1. Identifying a Long Set-Up: A low in the SPY is typically associated with an extreme reading on the TICK (usually below -1,000) or several extreme levels that are followed by higher lows and higher highs.  Most lows in the stock market are usually retested to some extent and if the retest doesn’t create a lower low on the TICK or match the prior TICK low, I will execute a large long position and will not scale out of until I see lower highs and lower lows on the TICK.  Often times, I’ll go long if the TICK forms a long tail on the candle that is supported by a long tail on theSPY.  On a retest, I’ll usually add to trade.The charts on the left in the attachment below display a trade on Thursday where I went long SPY at $89.32 (9:12 AM CST) after seeing three extreme lows on the TICK that were followed by higher TICK lows and higher TICK highs and supported by a high volume retest of the overnight low on /ES (several long tails indicating strong buying interest at the overnight support level), a higher low on AAPL at 9:12 and strong buying interest on the next tick higher.One can say that the same analysis of observing higher lows and higher highs can be applied to the SPY chart but the key is to see what the TICK is doing on pullbacks/reversals the SPY.  If the SPY is rallying and each reversal within the uptrend does not result in a lower TICK, then it is safe to remain in the trade.   Higher lows on the TICK within an uptrend represent weaker selling interest.  If a lower low is seen in the TICK then you should either exit a portion of the trade or be on high alert.    
2. Identifying a Short Set-Up: On Thursday morning, SPY opened higher and traded sideways until it broke its morning support level at 8:56.  While the SPY was trading sideways, the TICK was deteriorating with lower highs and lower lows, which told me not to go long and consider executing a small short trade.   
3. Staying in a Trade or Knowing When Not to Execute a Trade:  A strong market is typically represented by numerous TICK readings above 800 and much fewer TICK readings below 600. On Tuesday (see charts on the right in the below attachment), when the market went straight up until the last hour, there were no TICK readings below -500 and several TICK readings above 1,000, an indication of a strong uptrend that should not be sold short.  At 1:14 and 1:24 the first TICK readings below -500 were recorded (-542 and -646), which was just prior to a 0.80% sell-off in SPY. 

Upper Charts are SPY and lower charts are TICK

Basically, Tyler is saying it’s a trader’s market and the only things that are relevant are technicals and trader sentiment.

Thus while the market continues trading on a speculative basis and conjecture rooted in the casino psychology that has gripped equity markets (and recently credit markets as well), the long term picture is much less sanguine as the excesses of the credit cycle from the past 60 years wear off and not only asset prices but also repo haircuts find a new equilibrium.

What is certain is that the near-term economy will be driven in spurts and starts as mass psychology shifts from one extreme to another. The next catalyst in my view will be the interplay of the impact of stimulus spending coupled with the failure of the green shoots materializing into anything worthwhile. And while this will make the life of daytraders interesting, the traditional buy and hold approach to asset accumulation must be delayed indefinitely, until the critical equilibrium discussed above is achieved. Until that happens, anyone who claims the economy is headed in the right direction (either much higher or much lower), is merely spreading their own agenda or has an opinion that is fundamentally not rooted in actual facts.

Source: http://zerohedge.blogspot.com/2009/05/chasing-shadow-of-money.html

While hindsight is 20/20, Tuesday represented an excellent point to enter a short trade.  The following reasons justify the trade: 1) mkt gapped lower on Monday, 2) on Tuesday, the gap was not filled and Monday’s high was tested and failed, 3) stress tests, earnings and jobs report are all behind us, 4) 93 on SPY represented a major level of resistance (it’s also approximately the area where the market puked on Jan 7), and 5) the chart pattern looks very similar to the Jan top.  However, there are so many intraday trading opportunities that it is not necessary to take overnight risk.  I do expect the market to correct further, but it doesn’t matter because I am nimble and will trade what I see.  I think the most likely near-term downside target is 82.5 on SPY and if that level fails, we will likely test the 77-80 area.  A number of scenarios could develop.  Everybody seems to be expecting a correction lower, which is why it is important to be nimble because if there is positive news, such as a better than expected jobless claims figure, the market could trap a lot of bears and rip higher as they cover.  I read that last week will be the first week to reflect the Chrysler layoffs so I don’t expect the jobless claims figure to beat consensus. 

Today was an excellent trading day for me, as I felt completely in control of the market.  I made money on both the long and short side.  Below is the thought process behind each of my trades (they are numbered in the chart below):

1) Long SPY @ 9:10 CST The market gapped lower at the open and support was found near 89.2.  When the 89.2 level was retested and a higher low was made, I went long some SPY.  I did this because it appeared the market wanted to retest its opening level.  I took half the trade off near the opening level and sold the other half when I saw those long pins on the candle, which represented the high of the day.  Often times, long extensions on the candle represent strong rejection from the market (similar to touching a hot stove).

2) Short via SDS at 9:40: The market rejected the 90 resistance level with conviction at 9:28 CST and 9:34 CST.  When SPY broke lower, I went short via SDS on an attempt to retest the 90 level, which failed at 89.83.  I took the entire trade off near the VWAP.

3) Large Short via SDS at 11:28 CST: The market tested the VWAP for a second time and was rejected with force at 11:14 CST as evidenced by the long candle.  The market traded in a sideways channel for a few minutes, representing consolidation and indecision.  When the market does this, there is usually a strong break when the sideways channel is broke.  When SPY broke to the downside, I went short in size since I had a negative bias which was supported by the price action in the chart.  This trade worked almost immediately and I sold 1/3 of the position when support was tested around 89.1.  I looked back over the last 20 days to locate the next level of major support and it was the May 4 opening gap higher at 88.5.  I intended to sell 1/3 of my SDS when SPY was near the 88.5 level, but I didn’t want to press my luck and sold it a bit early.  I held the last 1/3 just in case the mkt continued to go lower, however, 88.5 looked like a near term bottom judging from the way buyers protected the level and how quick they took it higher.

I am looking into a way to post my trades live via Think or Swim.  If this doesn’t work, I’ll have my jr. trader post all trades to twitter.

On a side-note, all this inflation talk is overdone.  All the inflationary actions of the government will be counteracted by severe credit contraction and asset deflation.  Consumers are saving much more money, which will create demand for risk-free assets and you can’t have inflation from printing new money and selling treasuries if it is being done to offset weak consumer demand and currency destruction.  During this credit bubble, assets such as homes were viewed as currency (assets were used as collateral with very low haircuts e.g. homeowners were able to borrow against 95% of the value of their homes).  Now that the value of such collateral has declined and lenders demand a larger haircut (more collateral), asset values contract (similar to money contraction).  Even if oil goes to $100, this will not be real inflation, because wages and asset values can continue to decline.  The only way we will see meaningful inflation is if the economy expands rapidly and asset values catapult higher.  Can anybody think of a catalyst for such growth?

10 day on left. 1 day chart on right.