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Posts: 1,054
Reply with quote  #1 

A few years ago, one of my brothers sent the recipe of a TRIN variant that I think is called the Eliades New TRIN.  I have not verified the derivation I use as being the same as Peter's, but this TRIN variant works very well for equity groups such as the common stocks, RUT, RUI, SPX, etc, where the traditional ARMs index does not work well.

Last week, the NYSE Eliades TRIN reached extreme values of 0.28 and 0.29 on consecutive days which are far lower than any values over the past 50+ years.  This TRIN variant is different than the Open TRIN Fib often discusses in the chat discussions.  The Eliades recipe I use divides the NYSE down volume 10 day MA by the up volume 10 day MA, then divides that result by the ARMs index 10 day MA, with the indicator being the blue curve in the below chart.

Particularly during the bear market (thus far) this tool has been an excellent flag for initiating short positions when it reaches the 0.50 to 0.60 range and turns up... and also identifies short term bottoms at its higher extremes.

Since the Eliades TRIN levels posted early last week were so extreme within the indicator's lower range, a historical study was needed to interpret what this extreme suggests. I filtered out all Eliades events less than 0.30 since 1940 and found only 21 days, out of over 17,800 days, when the Eliades TRIN was less than 0.30. The next chart's blue spikes illustrate the low extremes since 1940.  The Eliades TRIN has not fallen below 0.30 since 1955.

We'll zoom in on the 1940s which had a total of 11 Eliades TRIN days below 0.30.  In all cases, the low extremes in the Eliades TRIN results in some level of further upside price appreciation, but are eventually followed by price weakness.  Note how the 1940 and 1946 low extremes followed nasty price drops.

The 1955 extreme Eliades TRIN lows came in a a cluster of eight consecutive days. This low Eliades TRIN event was triggered during a sharp decline following a robust year-long price advance, different conditions leading up to the most recent Eliades TRIN extremes. 

Changing the topic to options related action, an update on the equity options smallest trader ( 1 to 10 contracts per transaction) Buy-To-Open (BTO) volume Put-Call (PC) ratio. After climbing to over 0.90 in late November, the smallest trader BTO PC ratio fell to 0.75 last week, which is still a lofty level for this indicator over the past several years.  Before this bear market runs its course, I would expect the volume PC ratio to rise well above 1.0.

The small trader equity options BTO premium PC ratio has plunged to 1.08 from an all-time series high a few weeks ago. One would expect further contraction in this indicator before another price leg down gets underway in earnest.

The largest group of retail equity options traders, those trading over 50 contracts per transaction, BTO premium PC ratio is rapidly approaching levels that have accompanied intermediate or short term price highs over the past several months. I have found it interesting this largest group of retail options traders has been a better contrary indicator than the smallest options traders over the past several months.

Another indicator that has worked well throughout this bear market is the detrended options volume-volatility ratio data, I call the power tool ().  Most of the power variants are in danger for the bulls range, the next chart illustrates the OEX options volume-VXO volatility index version, which is nearing sell territory.

Whether up or down, the market maker activity in the major ETFs options contracts: QQQQ, SPY, IWM, and DIA, has reached levels where significant price moves usually follow. Friday, the market maker volume percentage of all volume (market makers + retail + firms) in those four ETF contracts reached an all-time high of 66%. 

This next indicator compares the daily market maker equity options PC ratio against the composite retail/brokerage firm equity options PC ratio. Typically, this tool flashes buy signals when it turns up below the zero line, and provides warning flags for long positions after it rolls over above the zero line.

The next chart is the same approach as the market maker-retail/firm PC ratio deltas, but looks at the OEX market maker action versus the retail/firm action.  The market makers dominate the OEX volume (SPY contracts are another series heavily dominated by market makers), with their only competition being the retail traders (firms are insignificant players in those contracts).

During this entire bear market, when the blue curve reaches the red-dashed line and turns up, it is not a good time to be initiating new long positions.

Finally, here is an indicator I don't think has been thrown up against the wall publicly before. The OCC does not release the market maker BTO action, only their BTO and Sell-To-Open (STO) closing volume and premiums, which apparently collates the market maker opening and closing volume/premiums.

There are methods to deduce what the market makers are up to regarding their opening position activities, particularly on their STO (writing the contract) operations. One looks at the retail and brokerage firm STO and BTO volume, and typically, their STO volume is quite a bit less than their BTO volume. So we know the market makers stepped in to provide the other side of those weekly BTO positions by the retail and brokerage firms not offset by the retail/firm STO activities.

This charts shows just the raw STO put volume that does not offset the retail/firm BTO put volume, thus when the black curve approaches its lower range over the past few months, it indicates minimal need for the market makers to step in and short put positions opened by the retail/firm traders has diminished, and usually dovetails with price highs. 

In another words, when the indicator reaches its lower zone, retail and firms are more than willing to write puts offsetting more of the retail/firm BTO put volume due to the mindset these puts will expire worthless, and the retail/firm trader will pocket the put premiums.

This indicator still has room for lower levels based upon activity during the bear market, but the warning flag is being raised.

There are currently several conflicting indicators within the TA tool box.  If we are still in a bear market, several of the tools discussed and not discussed in this thread must be be respected.  If indeed the divergences in many internals indicators with price, along with extreme "potential initiation thrust" levels reached by many MCOs, are signaling the end of the bear, then many of the seemingly bearish tools currently in play should be given little weight.

I am skeptical the bear is finished, but if we see further improvement in the internals (MCO 5% trend component in particular) and price action, then the possibility of the longer term trend flipping must be respected...




Posts: 5,135
Reply with quote  #2 
A truly outstanding post Randy. Thank you for taking the time in putting it together and providing it here at Technical Watch.


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Posts: 24
Reply with quote  #3 
A truly outstanding post Randy. Thank you for taking the time in putting it together and providing it here at Technical Watch.

    I'm with Fib, great post; thank you so very much.


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Posts: 4
Reply with quote  #4 
best analysis of option data I've ever seen.



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Posts: 46
Reply with quote  #5 

Randy, first class as always, great detail

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