Trader’s Narrative

The cumulative tick indicator was invented and made famous by the market wizard, Mark D. Cook. Since the indicator is proprietary, Cook hasn’t divulged its exact calculation but he has mentioned that it is a cumulative measure of tick for n days. Tick, of course, being the measure that tells us the net of all upticks minus downticks at a given time. Cook ignores readings between +/-400 and keeps a running total of ticks outside this threshold, adding them together at fixed time intervals. If you’re interested to find out more, read Stock Market Wizards by Schwager.

Mark D. Cook warned in August 2005 (before the market dropped) that his indicator was then pointing to a market top. This is an extremely powerful indicator but since it is an intermediate indicator, it can be a little early at times.

Although it’s not perfect, you can approximate this indicator by looking at a short term moving average of tick:

In any case, right now, the cumulative tick readings for both NYSE and Nasdaq are running at statistically significant extremes. The last time they were at these levels was October 2004, March 2005, and October 2005.