Using Intraday TICK Signals to Forecast Reversals

Feb 16, 2011: 12:41 PM CST

I wanted to document what the TICK had to say about today’s sharp reversal and lunch-time market drop.

The TICK gave a classic “One-Two” Punch Warning Signal… and if you missed the signal, take a moment to look at the chart of the SPY and TICK and learn what the TICK had to say and when it said it in advance of the turn.

SPY and TICK – 1-min chart:

To learn this important concept – applicable mostly to intraday index futures or ETF traders – take a close look at the chart above.

We gapped up this morning to new recovery highs and the TICK was confirming the price move… until price rose into the 9:45am CST period with TICK trailing lower as price rose higher.

That’s not really a big deal – during strong trend days, we can have continued pushes higher in price with the TICK stagnating near the highs, or occasionally popping up to a new intraday high along with price.

However, whenever TICK ‘stair-steps’ down as price “stair-steps” up, you need to be very cautious from the long side.

Take a look at the new intraday swing highs that progressed until about 10:00am and then compare those directly with the lower TICK highs.

Case in point – while the SPY traded at $133.80, the NYSE TICK read 819… or there were 819 more stocks “ticking” up at that moment vs. those ‘ticking’ down.  That’s bullish and a confirmation for higher expected prices.

Ok, when we got subsequent higher prices, the TICK high traded lower and lower until the ultimate price high formed at $134.01 at 10:04am CST with a non-confirming TICK high of 469.

That’s not good.  Take profits if long at a minimum!

Divergences are one thing but “Kick-off” signals in the TICK are another.

Immediately after forming what I like to call a “Multi-Swing TICK Divergence,” the TICK plunged to new intraday session lows when price was clearly NOT making a new intraday session low.

Double Uh-Oh.

That’s called a “Kick-Off” signal and it was immediately followed by another new intraday TICK low (when price was NOT making a new intraday low) at 10:10am.

When you get this sort of situation, it’s no longer just a simple “Take Profits” signal, but a potential to flip short and play aggressive for an intraday trend REVERSAL.

That’s exactly what happened.

I show four arrows on EMA or price trendline breaks for you to enter a quick short-sale position with a stop being placed above the $134 level in the event the reversal fails and price swings back up.

Price fell from the $134 high to the above chart low shortly after at $133.20 – an 80 cent move or roughly an 8 point move in the @ES futures contract.

I would say the ideal short-sale entry came at 10:25am CST when price slashed under the little horizontal support shelf and cleanly under the 50 EMA… as the 20/50 EMAs then crossed bearishly overhead.

The stop would go above $134 for a potential target being the morning’s session low at $133.40.  Ultimately, price ‘collapsed’ beyond this point to pogo off $133.20.

These are the lessons and set-ups/logic/information I describe in each day’s Idealized Trades reports for subscribers – designed to teach these concepts on a day-to-day basis.

So let’s recap:

If you’re just looking at price, you’re missing the signals given from market internals – particularly the TICK.

Even if you’re monitoring price with the TICK, it’s important to learn the ‘language’ of the TICK, as seen best by this example.

1.  Multi-Swing Negative TICK Divergences warn of caution and potential price trend reversals ahead

2.  Kick-Off Signals in the TICK following a Multi-Swing divergence are even STRONGER signals of potential trend reversal

Divergences are warning signals, but divergences plus Kick-Off signals are even more powerful signals that should grab your attention.

You don’t have to play the trade, but don’t stay blissfully long while price rises but the TICK loudly screams “Caution!” with a One-Two Signal.

Corey Rosenbloom, CMT
Afraid to

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5 Responses to “Using Intraday TICK Signals to Forecast Reversals”

  1. Tweets that mention Using Intraday TICK Signals to Forecast Reversals | Afraid to Blog -- Says:

    […] This post was mentioned on Twitter by Corey Rosenbloom , Yves Goldberg. Yves Goldberg said: RT @afraidtotrade: Using Intraday TICK Signals to Forecast Reversals $STUDY $SPY $ES_F #mkt $$ […]

  2. Minds_aye Says:

    Yet another gem Corey. Thanks so much for the insight.

  3. History Repeating with TICK Forecasting Intraday Reversal Lesson | Afraid to Blog Says:

    […] Lesson Feb 18, 2011: 3:38 PM CST Did you learn the lesson I showed this Wednesday entitled “Using TICK to Forecast Intraday Reversals?“  If you didn’t, here’s yet another chance to learn the important lesson – […]

  4. April 11 Lesson in Trading and Forecasting with the TICK | Afraid to Blog Says:

    […] new TICK lows expanding along with new price lows on the session as the afternoon sell-off  forecast – not guaranteed of course – the morning TICK weakness with the new price […]

  5. Tprovan Says:

    this is now an old post but kickoffs must be a trend day things as I
    have noticed that it is the exact reverse on range days new low tick new low price , new low price higher low on the tick then its a counter trend reversal or trend change