I decided to look at the TRIN so far this year and compare it with price activity of the NYSE Composite Index. Here is an annotated chart showing the details: Link

  • note: NYSE Composite Index = $NYA

My first observation is the difference between the rise in the $NYA and the running average of the TRIN. We will recall that a TRIN over 1.0 indicates volume flowing through decreasing equities and a TRIN under 1.0 indicates volume flowing through rising equities. In the first quarter we see the TRIN 1, 2 and 3 week average running solidly above 1.0 whereas the index ran up 10%.

Many interpretations exist but one I will offer is that “smart” money or institutions which constitute the majority of the volume have been selling in this run-up while “retail” has been buying the apparent strength only to be left break-even for the year, if lucky.
Reflecting upon the period from April to May we note this was the period in the news where multi-year highs were being broken. Perhaps this is the index equivalent of a bump-and-run-formation.

This correction seems only logical. I will be looking at a broader perspective as well as looking for this situation in the past to determine if it can be replicated with any sort of confidence in the future. I am also interested in whether or not the sell-off will continue for any period of time or whether broad uptrending lines will be respected. Please leave any comments you may have on this analysis or suggestions/thoughts.

Further research to be done: Include analysis on $VIX and relate with Indices and TRIN, etc. Include other time periods as well as a 3-year analysis. Include analysis of weekly ticks instead of daily ticks.