TRIN is short for Trader’s Index developed by Richard Arms in 1967. It is often presented as a ratio calculated as follows:
TRIN = (advancing issues / declining issues) / (advancing volume / declining volume)
It is easier
for me to visualize TRIN in the following format:
TRIN = (declining
volume / declining issues) / (advancing volume / advancing issues)
The units of
this version of TRIN are “volume per share of declining issue” in the numerator
divided by “volume per share of advancing stock” in the denominator. So Thursday’s TRIN of 2.15 means that over
twice as many shares per issue were traded to the downside than shares per
issue traded to the upside. That’s why
many were suggesting that Thursday was a bottom. TRIN>2.0 is usually bullish and can
indicate a bottom.
My take is
that TRIN >2.0 has “worked” in 2014 because it identifies a minor capitulation bottom as traders
sell. Conversely, if a high TRIN occurs
near a top, as it did Thursday (25 Sep 2014) when the index was only 2% below
the top, it is more likely to indicate selling based on news that surprised the
markets or simple fear. Either way, I don’t
see Thursday’s high TRIN as a reason to buy-the-dip.
Can one have capitulation selling if the market is only 2% below its top
as it was last Thursday when the TRIN hit 2.15? No.
PROS SELLING?
If that isn’t enough, consider that there has been late day selling 9
out of the last 10-days. That is when
the Pros trade.
WATCHING THE CHART
Last, I could always be wrong (again) so let’s watch and see if Friday’s
high of 1983 holds thru mid-week. If it does, perhaps we’ll see other evidence
of a turnaround to the upside.
