My friend AJ made an interesting comment about using the On Balance Volume indicator to raise question about my claim that instutitons had not been selling as retail had been buying for the first quarter of 2006. You can read more about OBV here.

First, I pulled up the daily and weekly charts of the 1yr $NYA and plotted the OBV. What I noticed was a difference of opinion based on which chart was used. The daily chart continued a bullish trend in the OBV but the weekly chart showed a divergence in price similar to the TRIN that I discussed in my previous article. Institutions deal in volumes that outweigh single day movements. In this case, I tend to believe that a weekly chart of volume v. price analysis is significantly more valuable to the chart analyst.

As you can see in THIS CHART there is significant divergence in the first quarter between the price activity and the On Balance Volume indicator. This was later followed by the CMF forming a lower high on the last up week in late April early May. The ideal result from these observations would have been to enter significant short positions following a breakdown/reconfirmation of the strict uptrend of the 2 quarters from Oct 05 to Apr/May 06. $NYA succumbed over 400 points since that point.

In review, I believe that following the OBV of weekly movements in an attempt to decrypt institutional activity may prove more fruitful than using daily charts. Using the TRIN together with OBV and other volume/direction indicators are quite informative. Furthermore, I would like to point out that these views have not been backtested so the expectancy of using such a method is not necessarily positive but it may provide future usefulness if observed again.