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?
UPDATE: The market rallied some more on September 3rd after the non-farm payrolls report came in better than expected. And that pushed the three-day moving average of the TRIN down to an amazing 0.35. That is the lowest reading since May 1999, which is as far back as TradeStation’s TRIN data goes. Not only that, but it smashed the old record by quite a lot. The previous record was set on March 19, 2003 at 0.46. So, the first three days of September 2010 were the strongest surge of buying in at least 11 years.
I can’t find the ARMS Index in StockCharts to study it. The 3MA is short-term and using ATR would make it more sensitive. But that doesn’t make sense because the market has been consolidating for several days which should have muted the TRIN somewhat.
Can’t wait to find out the answer.
George, use $TRIN.
Matt, great post. Let me know if you can see the following chart. (I have been refraining from posting charts because it just seems inconsiderate to have them be invisible to our gracious host.) Give this a try. Man, I have been having a lot of problems trying to post. Arrggh.
The chart was made not by looking at the action of the SPX, but rather by calling waves on the USD/CAD and transferring those labels over to the SPX to see how they line up. This is the count I get by doing that. Obviously, it is invalidated if the SPX goes above 1100.14. (If this was intraday, it likely would have done so while I was typing–lol!) The volume pattern of waves 1,3, and 5 for Minor 1 on the USD/CAD fit well with those labels, too, where 3 had the highest volume.
http://stockcharts.com/h-sc/ui?s=$SPX&p=60&yr=0&mn=5&dy=13&id=p84099151404&a=207726562
Moral of the story is the count could line up well with your TRIN observation. Thin volume tomorrow does bother me, however.
Safe holiday weekend, all, and my prayers go out to everyone in the path of the storm.
Matt,
I’ve become very suspicious of any indicator which uses published NYSE breadth statistics. The reason why is that about half of the issues act more like bonds than real stocks (shares of real operating companies). If there were a switch from bonds to stocks, you’d never know it just looking at breadth figures.
On Thursday, the number of real stocks (i.e., shares of real operating companies) advancing was 1352, the number declining 450, up volume 3154704128, down volume 598225088, for a TRIN of .5697.
Wednesday’s common stock TRIN was 2.3729, a result of 1751 advancers and only 79 decliners.
Tuesday’s TRIN was .45278.
The 3-day average was 1.1318.
Matt
I am always ready, but rarely called. I have had my license for 5+ years, and only been deployed once for Ike.
String
JG to the rescue! Got it now. I never knew that existed. Something new to study.
Thanks
This may be a good day to stain my deck. Afterhours looks rather dead: Although; from the crosshairtrader with regards to Memorial Day holiday trading –
3 Days Before: + 1.2%
2 Days Before: – 10.4%
1 Day Before: +16%! (emphasis mine)
1 Day After: – 5.7%
2 Days After: + 3.3%
3 Days After: + 3.8%
http://tinyurl.com/2g3olh3
Not even a drop of rain near the capital of the first threatened state. The new capital that is.
Bob,
Thanks for the distinction.
Hi String,
Great to hear from you!
Definitely not #3 Matt, but can see the other options being very possible. Lost jobs this past month and the market popped 10 points immediately for being “less bad.” My prediction is “this will all end badly” but the timing is anyone’s guess. So near term, I think we’ll climb and climb a wall that is built on a shaky foundation. When it all comes tumbling down, look out…cause we’ll be falling from a higher precipice.
Enjoy your weekend all, trade like you know the next tick, and prayers for those in the path of Earl.
TNX up +1.11. It has had some big swings lately.
Yes, all of you affected by Earl, best wishes. I’ve been through Hugo and it’s not fun.
Wow, this is not going to bode well for the bulls in the near future. Another daily gap up and counting.
Mitch, thanks for staying in touch…
happy to see GLW coming back some, my inverse short on cdn financials is another story…
p
The rocket is in orbit.
Anyone for a MOAR of sorts?
We stuck at 1098 do we make one more run to 1105
GEORGE
http://grin.hq.nasa.gov/IMAGES/SMALL/GPN-2000-000731.jpg
Congrats if you caught this one with good entry! I’ll be picking some spots next week after I get a grip on next direcion’.
MITCH
bought just before the jobs release….
saw bonds selling off at 8:20…
that was the tipoff
looks like they squeeze em till the close
going to sell 75% just before the bell
phil,
It was clear years ago this market was going to hang its hat on jobs. Expect nothing less huh?
The three-day TRIN moving average is at 0.39 now. If it closes there, it will be the lowest on record. TradeStation’s TRIN data goes back to May 1999. The previous record was 0.46, so this would be a very thorough smashing.
Gotta luv that double bottom on Daily Stoch.,who would of guessed 5% 1st week of Setember
My former core . . . . . . . oh I’m so sore
whodathunk scotty?
Scotty,
Yes, that was a good call:
http://www.trivisonno.com/cloud-trading/comment-page-1#comment-65585
Matt
lots of resistance just above here in spx futures.
.if we close near top tick i am selling it all
SSO pre market @ 36.11
now @ 36.90
waiting to hit sell
HASTA!
added some vxx and tza, would buy more of those, perhaps, next week obviously…
happy trading, happy camping, happy long weekend !!!
remember here in Canada, labour is spelled with a u !!!
Later buds.