Value of Perfect Information

Yesterday’s session ended on a positive note with an uncomplicated correlation in between the TICK and the SPY’s intra-day movements. Click Here for Part I

But what about those more complex moves like the red circled area below which we did not discuss? (See the chart #1 below).

Note that in this case, the TICK’s red and yellow trend lines briefly went positive (above the horizontal lines), and then went back down again.  (Also, at that time, the green trend line was still in a down trend, but one that was moving sideways.)  In the bottom portion of the chart, you can see that the SPY paused in consolidation and then continued lower.

Think about it, if the market did not go up when the red and yellow lines were moving above the horizontal line, then there must have been some kind of conflict going on.   The Question is … What was the conflict and how could you see it in conjunction with what was going on with the TICK?

For the answer, see the second chart …

When the market is in session, the larger investment firms often hedge their positions and use put and call options to do so.   Sometimes, investors do various call/put spreads to generate income.

Options activity is reflected back into the VIX (Volatility Index).  As you may know, the VIX is calculated in real time as a weighted blend of option price ranges on the S&P 500.  As such, many use it as a guide to as to the expected movement for the S&P 500 index over the next 30 days.   Since the VIX shows dynamic movement,the future expectations can change quickly relative to the change in options activity.

Enough explanation about that, suffice it to say that the VIX has a very valuable correlation between the $TICK and the SPY’s movements as we shall see …

Below is a merged chart of the TICK and the VIX on a 1 minute basis.  See the red circle on the TICK chart where there was confusion, and then look down to the VIX portion of the chart to see that it showed what the true bias was.   Note that we used the same Smoothed Moving Average settings on both.

So, when you observe the VIX,  you can see that it was clearly trending up until just before 12:45 AM. (See the second red circle at the bottom of the chart.)

And since the VIX moves in the opposite direction of the stock market, it meant that the S&P had negative pressure coming in to push it down lower.   Let’s see the third chart to see how that played out …

In this third chart, we simply merged the VIX and SPY charts together.

If you look at all three charts we discussed (the TICK, the VIX, and the SPY), you will see how they all correlated together with all of them finally signaling that the SPY would once again start moving UP just before 12:45 AM.

P.S. If you aren’t already one of our paid StockTiming.com subscribers, please think about giving it some consideration … thank you.

Marty Chenard

One of the caveats of being an intra-day scalper is that opportunity will be lacking without heightened levels of Volume & Volatility.  While Volume and Volatility is a fundamental criteria for many trading systems, the intra-day scalper is especially reliant on these conditions. 

This being the case, how does an intra-day trader find clues that are often symptomatic of low opportunity?  The quickest and least intensive method I’ve found in gauging the markets’ appetite for risk or risk aversion is $TICK and $ADD.   Indeed, these indicators have been discussed at length (especially for ES and SPY traders) but there continues to be a lot of misunderstanding as to how these tools can provide benefit for the intra-day scalper. 

The most important take away when reviewing the below image is to notice how truncated both $ADD (very tight range) and $TICK (No readings in excess of +/-800) are.  Additionally, NYSE down volume out swamped up volume by a healthy amount (see image) even though NYSE advancers were beating decliners.   Its been my experience that when these conditions (or “cross currents”) are present, the market will demonstrate lower amounts of enthusiasm and thus become more problematic to trade.

This is not to say one cannot make money (you can) but to do so, requires additional discretion.

This is Today’s NYSE Tick there was  only a few  Big + 750  buyers to get the  Rally push started  but no real follow through so far.

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This is Wed 08-19 08 Rally day. Notice the Big +750 to  + 1000 Ticks all day. Those are the Big boys.

TICK 1529