There is nothing more primary to a trader than price. Oscillators, averages, diffusion studies, and other tools can be handy guides but nevertheless almost always remain just that…guides. That said, I’d like to share a chart of a key market internal related to the Nasdaq Composite Index that has served as a guide to tops in the tech-weighted index over the last several months. Because it is only a guide to previous overbought “areas,” it should not be taken as gospel but rather treated as simply another view of a multi-faceted market and a potentially helpful guide to assessing market conditions.
The TRIN measures the volume flowing into stocks trading on downticks against volume flowing into stocks trading on upticks. In a nutshell, as the TRIN reaches new lows more volume is shown to be flowing into advancing stocks. While seemingly a positive thing, it is in fact often a scenario in which the market is subject to a reversal back to the downside especially if an extreme low TRIN reading comes on the heels of a robust market rally. The daily chart shown here is of the Nasdaq TRIN ($TRIN-Q), but without the daily noise of the market internal indicator itself. Instead, a 20-day moving average is used to pinpoint potential intermediate-term overbought or oversold areas. Note here that the Nasdaq TRIN has been up trending for months as the index declined steadily over the same time period. In the process, an up trendline connecting all major declines in the smoothed TRIN-Q has formed. These declines to the rising trendline mark several short-term or intermediate-term tops in the Nasdaq Composite including the area of the 9/1/00 high, the 12/11/00 high, and while not a full decline to the trendline, the late January/early February 2001 high. With the 20ma of the Nasdaq TRIN once again having pulled back to this rising trendline, Bulls may want to tread a bit lighter until price action in the Nasdaq Comp itself can prove this guide to no longer be useful as a cautionary guide. From another vantage point, a break below this trendline would indicate the possible end of this entrenched Bearish trend in the Nasdaq TRIN, and possibly suggest a more robust recovery for tech stocks. Check in with this intermediate-term market internal from time to time. You may find it to be a useful tool.
CHART located at
swingtrader.net |
