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What Is an Uptick?
Let me explain what an uptick is: it's simply an increase in the price of a financial instrument since the last transaction. You see this when a security's price rises compared to the previous tick or trade. Sometimes, people call it a plus tick.
Key Takeaways
Understand that an uptick happens when a transaction for a financial instrument is executed at a higher price than the one before it. For stocks trading above $1, the minimum tick size is one cent. There was an uptick rule from 1938 to 2007 that allowed short sales only on an uptick. In 2010, an alternative rule came in, requiring short sellers to trade on an uptick if the security has dropped 10% in a day. A downtick, on the other hand, is when the price moves down by at least one cent from the previous trade.
How an Uptick Works
The minimum tick size for stocks over $1 is one cent, so if a stock moves from $9 to $9.01 or higher, that's an uptick. If it drops to $8.99, it's a downtick. A stock only sees an uptick if enough investors decide to buy in. Take a stock at $9/$9.01—if sentiment is bearish, sellers will hit the bid at $9 without waiting for more. Buyers might hold off and lower their bids to $8.95, and if sellers outnumber them, that bid gets taken. This can push the stock down to $8.80 without any uptick. But if selling eases and buyers think it's cheap, they might bid $8.81, and a trade there would be an uptick from $8.80.
Types of Upticks
You should know there are several terms involving 'uptick.' A zero uptick is a transaction at the same price as the immediate previous one but higher than the one before that. Uptick volume is the number of shares traded while the stock price is rising. And then there's the uptick rule itself.
Special Considerations
The uptick rule mattered a lot in financial markets; it was active from 1938 to 2007 and required short sales only on an uptick to stop short sellers from overwhelming a falling stock. Many experts point to its repeal in 2007 as a factor in the volatility and bear market of 2008-2009. Without it, short sellers can keep hammering the stock down, drawing in more bears and scaring off buyers, which creates an imbalance and sharp declines.
Alternative Uptick Rule
In February 2010, the SEC introduced an alternative uptick rule to promote stability and investor confidence during volatile times. It says short-selling a stock that's down at least 10% in a day can only happen on an uptick. This gives investors time to exit long positions before bearish sentiment spirals, potentially saving them from big losses. The rule covers most securities and, once triggered, applies to short sales for the rest of that day and the next.
Example of an Uptick
Consider Stock ABC at $15.50. Positive sentiment builds because of a new product expected to beat competitors. Investors get bullish and start buying, pushing it from $15.50 to $15.60 in one trade—that's an uptick.
What Is Uptick Volume?
Uptick volume is the number of shares traded when a stock is on an uptick. Technical traders use it to find net volume, which is uptick volume minus downtick volume. You look for uptick volume to spot an upward shift and determine if a stock is starting a new uptrend.
What's the Difference Between an Uptick and Downtick?
The key difference is that an uptick is a stock price increase of at least one cent from the previous transaction, while a downtick is a decrease of at least one cent from the prior trade.
What Is the Downtick-Uptick Rule?
Also known as Rule 80A, the downtick-uptick rule was set by the NYSE to keep markets orderly during downturns; it was abolished in 2007. It required labeling sell trades on S&P 500 stocks as 'sell-plus' if the NYSE Composite Index moved more than 2% from the previous day during an upturn, and buy trades as 'buy-plus' during a downturn. This flagged trades to slow program trading in large volumes on S&P 500 companies.
What Does an Uptick in Bond Yields Mean?
An uptick in bond yields means higher returns for investors buying the bond, but the bond's price decreases when yields rise.
The Bottom Line
To wrap this up, an uptick is a stock price increase of at least one cent from the previous trade. You, as a trader or investor, watch upticks and downticks to figure out a stock's direction and the best times to buy or sell.
