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mortiz

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Reply with quote  #1 

The NYSE traditional TRIN (aka ARMs Index) posting last Thursday was 0.193 using WSJ breadth and volume numbers.  It turns out, Thursday's TRIN number was one of the lowest in the past 66 years (over 17,200 trading days).

 

First is a table describing the dates of all TRIN readings since 1940 less than 0.22... Thursday's TRIN of 0.193 places 20th lowest in the past 66 years.

 

 

If the above table is sorted on dates, 21 of the 30 lowest TRIN posting occurred before 1950.  Taking a close look at the days with low TRIN readings, I found some the low TRIN readings fell on days where declining stocks actually out-numbered advancing stocks. 

 

To get a better understanding of what unfolded historically after low TRIN readings appeared with the market climate similar to that we are currently in, I placed a couple of filters for culling out dates with low TRIN readings where the market climate was nothing like what has been in place recently:

 

1) Advances must be greater than declines

 

2) The TRIN 10 day MA must be greater than 1.05 two trading days prior to the low TRIN value event.  This filter is an attempt to look at what low TRIN readings mean following weakness in the NYSE.

 

After culling out the low TRIN days per the above filters, the next table lists the survivors as well as how the SPX fared in various time intervals following the event.  The last row in the table throws out the 1940s events, and looks at consequences with price from 1950 forward.  The label cell in the last row was truncated, but the row gives returns in the SPX from 1950 on following the low TRIN events.

 

 

The following charts have circled on the red SPX curve, the approximate area where the low TRIN readings surfaced.

 

The 1940s:

 

 

 

 The 1950s:

 

 

 The 1982 event:

 

 

 The 2003 chart for the low TRIN event (March 2003) can be accessed about anywhere, so I will leave it to the reader to research the aftermath of the 2003 low TRIN event.

 

Have to get to work, so the summary is brief: historically, low TRIN readings as posted June 15, 2006 result, on average, in higher prices prices going forward.  It will be left to reader to offer theories why this time will be different.

 

FWIW

 

Randy

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jmicou

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Reply with quote  #2 
Thank you for sharing your research! Very interesting.

regards,

jmicou

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mr_cassandra

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Reply with quote  #3 

Nice post, thanks.

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ken29

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Reply with quote  #4 
Thanks Randy for sharing your interesting research on the low TRIN readings.

If I understand your filtered low TRIN days table correctly, it seems that if the first 3 days after the low TRIN day (2/21/46, 10/15/46, 10/23/57) were down then the market stayed down for the next 20 days. On the other hand, if the first 3 days were up big (6/11/40, 8/20/82) then the market likely to be up big in the next 20 days.



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mortiz

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Reply with quote  #5 

Ken,

 

Your observation for the three days following a TRIN extreme and its effect on prices 20 days later, seems to be the pattern.  Using the three day approach I took, Tuesday, 6-20-06, will be counted as the third day. 

 

There are several other factors that should be considered as well, but this study is the quick and dirty approach.  Purist statisticians would object to the thin sample space used in this study, since I have run across that argument before with other rare events in the market. But rare events are what they are... rare.  Therefore, we can only glean a conclusion from the handful of past events, and your hypothesis on the "three-day rule" is very astute.

 

Leading up to Thursday's action, were some negative rare events regarding plurality in breadth, that often preclude further damage in price.  So we'll soon see which events carries the trump card with respect to the outcome in price over the coming days/months.

 

There are several setups favoring the bull case, extremely positive CLX offsets, divergences everywhere with MCOs over the past week, etc.  But, there have also been several momentum extremes that often require a retest of lows both in the near term and the intermediate term down the road.  This climate is a day traders dream.

 

Thank you all for the feedback and it will be interesting to see which side wins this in the near and intermediate term, the bullish or bearish historical connotations.

 

Randy

 

 

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ken29

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Reply with quote  #6 
Randy, I totally agree with your market analysis.

In my humble opinion, I think the rally last Thursday avoided the possibility of a crash in the next few weeks. I think there are enough favorable factors such as the CLX offsets, various positive TA divergences that I think the market will make a short term bottom in the next 2-3 days.

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PIK

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Reply with quote  #7 

Randy, thanks for posting your research.  Fantastic work once again!

 

Chuck

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