On December 16th, 2008 I issued a TRIN Alert when the SPX was at 913. After four days of plunging, it bottomed out at 857.
On February 5th, 2009 I issued a TRIN Alert when the SPX was at 846. It continued to rally up to 876 over the next two days, but then rolled over and began the historic plunge to 666.
And now, drum roll please….
The three-day moving average of the TRIN that I use is more overbought than it was in the previous TRIN Alerts. In fact, this is the most overbought reading in 7.5 years.
In the upper panel of the chart below is the three-day moving average of the TRIN. The lower the number the more overbought the market it is, and vice versa. In the lower panel is the SPX. The purple arrow points to Thursday’s reading of 0.51. If you follow the blue horizontal line to the left, you will see that it is the lowest reading on the chart. (Click chart to enlarge):
The TRIN is a pretty good overbought/oversold indicator. However, “too much buying” isn’t always bearish. If you look at the red arrow, you will see that the second lowest reading on the chart came on March 10, 2009 at the beginning of the historic rally. Everybody was short at that time, and then FASB waved its magic wand to make all the banks solvent again by revoking the market-to-market accounting rule, and everybody had to cover-up. But the next day, the SPX opened at 721, and then closed at 721. Even then, the overbought TRIN held the market back, if only for one day.
So, the odds definitely favor the bears at this juncture.
Of course, there is no sure thing in the stock market. And here are three possibilites that could power the market throught this TRIN reading:
1) We are coming out of a period of very negitive sentiment, which means that there might be a lot more short-squeeze fuel for the market.
2) It is possible that the big dogs have decided to rotate out of bonds and into stocks.
3) Joe Sixpack has contracted stock-fever again and is piling in 1990s style. (Not very likely.)
So which is it? Has the market just completed a short squeeze and is now ready to roll over? Or have we just seen the opening salvo of a massive buying spree?




