I’ve watched the Cumulative TICK indicator for the better part of six years now. Recall that the Cumulative TICK indicator creates a running total of the average TICK reading throughout the day. It gives us a broad sense of the underlying buying or selling going on behind the price action. One of my favorite uses of this indicator is spotting the divergence that occurs near market tops as the buyers begin to dry up. The topping pattern is generally the same and usually begins with a strong trend day and price advancing toward overhead resistance. In the following days, price probes higher trying to attract additional buying but these price advances are accompanied by a weakening Cumulative TICK. This is a classic indication that the buying pressure is drying up. Make no mistake, price can still resume higher but it must be accompanied by renewed strength in the Cumulative TICK or the move will fade quickly and result in a near term top. We can see in the image below that just such a pattern is appearing in the market now.
I’ll be keying in on the Cumulative TICK for further signs of weakness if price advances in the coming days.