How The TRIN Is Useful
The December S&P 500
futures (SPZ and ESZ) opened Tuesday’s session with a -5.75 point gap
to the downside. After the initial attempt to close at least some of the gap
failed at S1 just under 1,029, the sellers took over and drove the futures down
to the session low just above S2 support. The contract clawed its way back to
the open price and S1 area when good broker buying ignited a local short squeeze
and a test of Monday’s high of 1,033.50. The contract chopped back down to test
Monday’s low before good broker buying again sparked the 2nd big local short
squeeze of the session. Good price fades against the TICK pullbacks provided
more fuel for the fire as the contract settled just under the multi-month high
of 1,039.
The December S&P 500 futures closed Tuesday’s
session with a gain of +3.75 points, and finished in the top 1/3 of its daily
range. Volume in the ES was estimated at 834,000 contracts, which was well
ahead of Monday’s pace, and above the daily average. On a daily basis, the
contract posted a bullish engulfing line and has formed a small cup and handle
just under the September high at 1,039. On an intraday basis, the 13-min broke
another symmetrical triangle and has entered the 1st reversal area on a bearish
Butterfly pattern, giving a target of 1,031 (see chart).
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On Wednesday morning at 10:00 am ET, we have the
Wholesale Inventories report. While the consensus is for a 0.1% increase, keep
in mind that a higher number is bearish with regards to any inventories reports.
How is the TRIN useful?
The TRIN, also called the
Short-Term Trading Index or the Arms Index (after its creator, Dick Arms),
evaluates buying and selling pressure. Specifically, it measures the amount of
volume going into advancing stocks versus the amount of volume going into
declining stocks. Think of it as the market’s gas pedal. If the TRIN is moving
down, meaning somebody is stepping on the gas pedal, buying is coming into the
market. The old saying says that the bears live above 1.0 on the TRIN and the
bulls live below it, however, the trend of the TRIN is more important than the
absolute level. The TRIN’s main value is to “qualify” the overall tone of the
market and to help smooth out some of the noise in the S&P 500 futures price.
Please feel free to email me with any questions
you might have, and have a great trading day on Wednesday!
Chris Curran
chrisc@tradingmarkets.com