Learn About the MarketsWatching the TRIN
One of the seldom-followed indicators for the daily direction of the
market is the TRIN, or ARMS index. Briefing has noticed that at times, however,
this index has been a pretty good leading indicator of the daily direction
of the market.
The TRIN is a calculation that relates up-volume to down-volume for the
overall market, and contains more information than the advance/decline ratio
(A/D). The advance/decline ratio is usually expressed as a pure number (1495
advances to 1579 declines yesterday on the NYSE). The TRIN includes a measure
of the volume behind advances and declines, and is expressed as a ratio.
TRIN is the ratio of advances to declines divided by the ratio of up-volume
to down-volume. TRIN is calculated using the following formula:
TRIN = (# of advancing stocks / # of declining stocks) / (up-volume/down-volume)
For example, if the number of advances equals the number of declines
and the total up-volume equals the total down-volume, the ratio is 1.0 over
1.0, for a TRIN ratio of 1.0.
Ratios less than 1.0 are considered bullish, ratios over 1.0 are considered
bearish. The table below summarizes most people's interpretation of TRIN,
although interpretations vary.
| 0.65 and lower |
0.65 - 0.90 |
0.90 - 1.10 |
1.10 - 1.35 |
1.35 and above |
| very bullish |
bullish |
neutral |
bearish |
very bearish |
There are some who argue that ratios at the furthest extremes become
contra-indicative. In other words, a ratio of 1.80 might be argued as a
bullish condition, because it indicates an extremely oversold condition.
However, for a simple subjective measurement, the preceding table is useful.
Most technical analysts use TRIN charts with 20-day moving averages,
and other sophistications. But we've noticed that it is often helpful as
a short-term barometer for the day's direction.
TRIN Experiences
To illustrate how the TRIN can be used, we considered some actual trading
days. The NYSE TRIN index was a useful indicator of the overall market direction
on a short-term daily basis. Briefing noticed this on a purely subjective
basis; we did not do a comprehensive academic-style study using months or
years of data.
As a brief example of this, consider the TRIN on the following days.
| Dec. 1 |
09:45 |
10:00 |
11:00 |
12:00 |
13:00 |
14:00 |
15:00 |
Close |
| DOW |
-68.23 |
-55.87 |
-96.55 |
-47.89 |
-19.57 |
-9.78 |
-34.76 |
+16.99 |
| Trin |
1.17 |
0.96 |
1.03 |
1.00 |
0.92 |
0.89 |
0.98 |
0.94 |
In this example, the TRIN started out neutral, but on the bearish side,
and then trended toward bullishness. The market recovered steadily during
the day.
| Nov. 30 |
09:45 |
10:00 |
11:00 |
12:00 |
13:00 |
14:00 |
15:00 |
Close |
| DOW |
-39.14 |
-36.30 |
-102.47 |
-109.17 |
-105.56 |
-130.53 |
-158.08 |
-216.53 |
| Trin |
1.15 |
1.06 |
1.43 |
1.32 |
1.34 |
1.28 |
1.46 |
1.85 |
But on November 30, the TRIN also started out neutral, and approximately
at the same level, but then rose sharply into the bearish territory above
1.35. The trend never really went back down, and the market declined steadily.
| Nov. 23 |
09:45 |
10:00 |
11:00 |
12:00 |
13:00 |
14:00 |
15:00 |
Close |
| DOW |
+58.96 |
+74.41 |
+81.61 |
+120.75 |
+157.82 |
+151.64 |
+151.13 |
+214.72 |
| Trin |
0.49 |
0.50 |
0.63 |
0.60 |
0.56 |
0.56 |
0.56 |
0.58 |
On November 23, the TRIN started out bullishly low and stayed low. Although
it rose some from the open, it never left bullish territory and the market
rose continually all day.
| Nov. 11 |
09:45 |
10:00 |
11:00 |
12:00 |
13:00 |
14:00 |
15:00 |
Close |
| DOW |
+51.49 |
+46.34 |
+4.89 |
+17.25 |
+7.98 |
-33.73 |
-54.33 |
-40.16 |
| Trin |
0.57 |
0.41 |
0.77 |
0.79 |
0.86 |
0.84 |
0.90 |
0.96 |
As a final example, on November 11, the TRIN started out bullish, but
rose steadily above the bullish indicator by noon and continued rising.
The market lost all of its momentum and closed down for the day, losing
about 90 points from its early high.
In all of these examples, the trend in the TRIN during the first
part of the day is the indicator, not the overall reading.
TRIN as a Trading Vehicle
As a trading indicator, the TRIN is probably not that useful. It's widely
following by technical analysts and incorporated as a data point in many
computerized trading programs. As such, the value of futures contracts or
other instruments representing the overall market usually have TRIN indicators
factored in.
Nevertheless, watching the TRIN on an hourly basis can give you a little
bit of a clue as to how the day might turn out. The TRIN is published hourly
on Briefing.com's Market Internals page.
Robert V. Green
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