Happy New Year Hal!
I've been noticing the same thing you have with respect to the downside acceleration in breadth and volume indicators as measured by the MCOs.
There is currently a dichotomy between the large cap and small/mid cap money flow MCOs, i.e. as measured by the volume weighted price tools. A few weeks ago, it was evident the small and mid cap issues were taking a beating in their internals while the large cap cumulative breadth and volume lines were achieving new recovery highs.
Over the past several trading days, the large caps have been enduring the brunt of the selling pressure, while the small/mid cap universe's money flow internals relative strength has been the strongest.
The SPX $weighted Up-Down volume ($UD) MCO has been in a nosedive and as you suggest, is ripe for some degree of bounce. The SPX $UD MCO has nominally violated it October low, and if it hasn't already achieved its momentum low, this MCO will probably do so in the next couple of trading sessions.
The broader based large cap Russell 1000 (RUI) $UD MCO is exhibiting a similar oversold condition as the SPX group of stocks. However, the RUI $UD MCO, currently at -67, is slightly above its October low of -76. The Russell 1000 includes many issues classified as mid caps by Standard & Poors, thus as will be illustrated later, is moderately less oversold than the SPX $UD MCO.
The NDX $UD MCO has been predictably hammered, and at -94, is at its lowest posting in over a year. The missing link for a solid price bottom being in place, is the SPX, RUI, and NDX $UD MCOs, like their breadth and volume cousins, have not posted a positive divergence with price thus far.
The NYSE common stock only (NYA) $UD MCO provides a good example of an oversold MCO not positively diverging with price, circled in the below chart. The NYA $UD MCO posted an oversold level last August, but did not exhibit a positive divergence. A nice price pop followed, but the NYA $UD MCO could not reach the important +50 level, the rally failed to continue, and prices had to correct further to a lower low before a nice positive divergence was established in October.
The small cap RUT $UD MCO has not yet violated its mid-December low, and remains +16 points above that low while RUT price is challenging those same mid-December lows. Unfortunately, the RUT $UD MCO mid-December lows were not at extreme levels one would like to see for momentum lows... may be more downside work ahead.
The SML $UD MCO is behaving similar to RUT's with respect to price, although the SML $UD MCO did achieve a more solid oversold level earlier this month.
I noticed the RUT money flows were not as lopsided on the negative side earlier in December, which could be attributed to the cleansing process that has taken place in the lower quality small caps over the entire year of 2005. That hypothesis has some backing by the relative strength in the RUT and COMPQ cumulative breadth lines which have been trending lower the entire year
The mid cap $UD MCO is mimicking the small cap variants. However, the mid caps' money flows are now exhibiting the best relative strength of all cap classes, as they have exhibited for some time now.
Looks like some of the money flowing out of common stocks is finding its way into bond investment instruments as measured by the bond Closed End Fund (CEF) issues traded on the NYSE (300 issues). The bond CEF $UD MCO has broken out above resistance accompanied by extremely heavy volume over the past couple of weeks, in spite of the seasonably light trading.
As you mentioned in your observations, TRIN and TRINQ are both achieving levels associated with heavy selling and where price bounces often commence. A by-product of a collaborative project with McClellan Financial Publications is a variant of the ARMs index (TRIN) using the up-down $ weighted volume ratio as the denominator in the ARMs calculation in place of the straight up-down volume.
Below is a chart of the total NYSE TRIN (all issues) comparing the traditional TRIN calculation (black curve) versus TRIN using dollar weighted volume (blue curve). The two TRIN variants track one another closely most of the time, but when low priced stocks post extreme volume days, the two variants often tell a different story.
One example a few weeks ago, was the stock Calpine (CPN) which was trading under $1 before being delisted by the NYSE. CPN traded a couple hundred million shares on down volume while the rest of the NYSE was up smartly price-wise that day (12-1-05). Due to the CPN volume extreme, the traditional TRIN denominator was "artificially" lowered resulting in a surprisingly high TRIN reading of 0.81 for day, unusually high on a strong up day for the composite market.
By "unmasking" the impact CPN (less than $1) had on TRIN that day, the dollar weighted volume TRIN variant posted a value of 0.47, more in line of what one would expect with a robust advance in index prices. Currently, both TRIN variants are voting for a relief in selling pressure, accompanied by a near term price reversal.
It is likely we will enjoy a short term pop in prices, but as Hal stated, we have the 9-month cycle low still 4 to 6 weeks away, based upon most cycle counts. I would expect a short term bounce within the next couple of weeks time frame, then another selloff ultimately taking us into the 40 week cycle low. One could expect lower lows in prices during the final leg down, setting up the MCO positive divergences and instilling some sorely needed fear into the bullish camp.
As far as what those lows will be price-wise? Hal's Fib count is plausible and the SPX achieving those levels would certainly clear the air for another strong IT rally. I will leave it to the Fibonista and other price projection experts to provide where the bottom will be price-wise.