Hewlett Up/Down

When someone is asked the question, "What makes stocks move up or down?", the answer is often "If there were more buyers than sellers, then the stock moves up; if there were more sellers than buyers, then the stock goes down." However, it can be argued that it is the aggressiveness of buyers or sellers that moves prices. The Hewlett Up/Down indicator is a quantitative measure based on the premise that:

• Stocks go up only when buyers are aggressive; i.e. continually taking the offer price.
• Stocks go down only when sellers are aggressive; i.e. constantly selling the bid price
• Stocks go nowhere when buyers and sellers are complacent; they are buying and selling at the midpoint price.

When taking volume into consideration, if one were to divide the number of shares that transacted at the ask (buyer aggression) by the number of shares that occured at the bid (seller aggression), a person would get a quantification of the aggressiveness of either the buyers or the sellers. Note, only a few data vendors keep track of the amount of volume transacted at the bid and ask price.

For instance, if a stock moved downward, but the up/down ratio was 1 (i.e. neutral), then the stock is sliding downward but with no enthusiasm. However, if a stock moved downward and the up/down ratio was small (i.e. bearish), then that means that stockholders are not waiting but want to get out of a stock and therefore are willing to sell at the bid. This example shows great bearishness.