Tuesday 13 March 2007

Trading Index (TRIN) Divergence

The Emini closed down 27.50 points at 1,392.00 on Tuesday. We got the downward break - I hope everybody who reads my commentary was prepared and made good money.

The big question now is will the decline continue or will the 1,380 level hold? I don't know the answer but when I looked through my charts after the close today the Trading Index (TRIN) data stood out as quite unusual and might provide insightful.

Emini Trading Index TRIN Divergence Image

The chart above shows the adjusted Trading Index on daily bars. Remember the adjustments I make include:

  • Using both NYSE and NASDAQ data to get a broader market view
  • Making the data linear instead of ratio based
  • Flipping the data so that declines are negative and advances positive

What you can see from the chart is that today's adjusted TRIN reading is only -20! The decline we had two weeks ago registered an adjusted TRIN reading of over -300.

I've marked on the chart three divergence patterns over this period. The first is a bullish divergence pattern (price makes lower lows, TRIN makes higher lows) after the market correction on 27 February 2007 which led to a 45 point rally. Then we had a bearish divergence pattern (price makes higher highs, TRIN makes lower highs) which led to today's decline of 35 points from the high.

We now have another bullish divergence pattern with today's adjusted TRIN reading of -20. This could mean a significant break below 1,380 is unlikely. Let's wait and see.

Click the following link to find out more about using the Trading Index (TRIN).


Read more about TRIN Indicator

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