Trading Index (TRIN indicator) Turns
Trading Index (TRIN) weakness today. The Emini edged up 2.5 points to 1,376.00 on Monday. However, the Trading Index oscillator turned and volume shrank. This is another sign of weakness following Friday's turn down in the Smart Money indicator. Do you know how to use the Trading Index (TRIN) data?
First let’s look at Emini volume and inter-market divergence
There are a couple of notable points to make about the Emini market today. Volume has now shrunk to very low levels, which is a pattern we frequently see when a market tops out. Last Wednesday's volume was 1.3 million contracts, 1.0 million on Thursday, 0.8 million on Friday and now 0.7 million today, Monday. Along with this fall in volume, the daily range has also contracted significantly.
The NASDAQ is also very close to highs made back in April 2006. Today the NASDAQ closed at 2368 and the high made twice in April was 2375. I don't usually use support and resistance levels made so far apart as indicators for trading, however, I find this incident noteworthy. The Dow is making record highs, the S&P has overtaken its high made back in April, but the NASDAQ has failed to do so. This is a bearish sign with professional investors pushing blue-chip stocks rather than growth stocks.
Trading Index (TRIN) data needs manipulation before giving us answers
I have written before on the Trading Index and how to use it to find turning points in the Emini. Just to recap, I make 3 adjustments to the raw data to make it easier to use:
- Average the NYSE and NASDAQ data
- Take the log of this average index, and
- Invert the resulting log index.
You can build a useful oscillator by cumulating this data and then measuring the distance from a moving average. This oscillator is shown in the chart above plotted beneath daily bars of the Emini. Turns in this oscillator are shown with white and red dots on these daily bars. White dots are bearish and red dots are bullish. As you can see, today the market advanced but the Trading Index oscillator turned down from a very high reading - a bearish signal.
This is one of my favorite indicators but beware
Looking back on the Emini chart you can see how well this single indicator identifies swings in the market. Don't use this indicator alone though, combine it with other non-correlated market indicators to identify high probability market turning points.
Do a Google search for Trading Index (TRIN) and Emini to get more information.
TRIN Indicator Divergence
Trading Index (TRIN) divergence today. The Emini edged up to 1,347.75 on Wednesday. However, the Trading Index showed a very different picture. Keep reading below and I'll explain what adjustments I make to the raw data and how this very useful indicator can pin-point market turning points.
Some manipulation is required to get a useful Trading Index (TRIN) indicator
Trading Index data is available for the NYSE and NASDAQ. These two sets of data don't always move in synch and so I average them to give a better picture of the overall stock market. The Trading Index is also calculated as a ratio of advancing / declining issues to advancing / declining volume. The ratio form of this index is not balanced since end-of-day readings can go as high as 3.0 and as low as 0.3, with neutral being 1. To get around this and give a more balanced looking indicator I take the Log of the index.
Lastly, I invert the index so that positive values correspond with up moves in the market and vice versa. All these adjustments are shown in the chart above with the indicator labeled Trading Index Adj.
Look for divergence between the market and the Trading Index (TRIN)
Divergence happens when the market advances but the Trading Index is negative and vice versa. Remember a market advance in this instance is when the Close is greater than the Open. These divergences are also shown in the chart above as white and red dots on the daily bars. White dots are bearish and red dots are bullish. As you can see, today the market advanced but the adjusted Trading Index was negative - a bearish signal.
This is one of my favorite indicators but beware
Looking back on the chart you can see how well this single indicator pin-points market turning points. Don't use this indicator alone though, combine it with other non-correlated market indicators to identify high probability market turning points.
Do a Google search for Richard Arms, the developer of the Trading Index (TRIN), to get more information.
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