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Buzz & Banter



The NYSE TRIN is quite low this afternoon, as I'm showing a current reading of 0.55. This is a perfect opportunity to point out something that is very often misunderstood about this indicator - namely, that a low TRIN reading is an indication of a high-volume, broad-based rally. In actuality, low TRIN readings signify that there is relatively heavy volume flowing into a relatively small number of advancing issues.

Here is the formula for the TRIN:

(Advancing Issues / Declining Issues)
(Up Volume / Down Volume)

Let's assume that there have been 1.5 Billion shares traded in issues that are up on the day, and 500 million shares of volume in down issues. The TRIN will vary greatly depending on how many of those issues were up or down.

Let's look at two different examples. First, a broad-based rally with 1,500 more stocks advancing than declining:

TRIN = (2,500 / 1,000) / (1,500,000,000 / 500,000,000)
= 2.5 / 3
= .83

Now, a narrow rally with only 500 more advancers than decliners:

TRIN = (2,000 / 1,500) / (1,500,000,000 / 500,000,000)
= 1.3 / 3
= .44

The TRIN is considerably lower in the second example, even though not many stocks were participating in the advance. That is what we're seeing today, as I currently show only 360 more advancing issues than declining issues. Today's advance is not being widely bought, despite the initial impression given by the TRIN.

No positions in stocks mentioned.

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