The Nasdaq Has Been Serving Up Aces. Is Its Run Nearing an End?
Today, we compare buying and selling power on the Nasdaq and NYSE. Are we nearing a change in sentiment?
You've reached your free article limit
You've read 0 of 1 free Pro articles.
We probably don’t need another indicator to show us the divergences but this one is a bit different.
TRIN, better known as the Arms or Trading Index, is a measurement of the advance/decline line relative to up/down volume. Essentially, it shows buying or selling power. When it is high, we tend to think the selling is overwhelming the buying. When it is low, we believe the inverse: the buying is overwhelming the selling.
I would tend to consider a low (but not extreme) TRIN to be in the .50s and a high TRIN (but not extreme) to be over 1.0. In the last week or so, we’ve seen the TRIN for the NYSE over 1.0 for six straight days which basically says there has been a lot of selling on the NYSE. You can see the TRIN’s 10-day moving average is now approaching the levels it saw in April, and we know how much selling we saw in that six percent drawdown of the S&P. Heck, it is nearing the level we saw at the October low!
What about Nasdaq? Nasdaq’s TRIN over those same six trading days has been .60 or under for four of them. The other two were in the .70s. So let’s check in on the ten day moving average of Nasdaq’s TRIN. It’ s .61 which is close to the levels it was at in early 2021.
As a reminder early 2021 saw the peak in SPACs, Crypto, NFT’s and basically was the internal peak for the majority of stocks. But my point here is the NYSE's ten-day moving average of TRIN is 1.17 while Nasdaq’s is .61, almost half of what the NYSE’s is. At the April low Nasdaq’s was at .94.
As I have said, that is the market we have. I don’t believe it is a healthy one. Most of the sentiment statistics show folks are paying more attention to Nasdaq than the NYSE, meaning complacency is high. However the chatter –not yet seen in any statistics—is becoming much more sanguine. I see more folks noting that they are becoming quite concerned about the divergences. That has not yet translated into statistics yet. For example the DSI for Nasdaq is still 88 and the S&P is at 87.
I maintain if we want to change the sentiment from complacent, we are going to have to see levels and lines break. I suspect if we do break some important levels, we will see sentiment plunge quickly.
I am always a fan of breaking because I think it cleans out weak holders, it cleans out sentiment and gives the market a reset. I am not a fan of watching the index movers mill around while everything else plays catch up. That doesn’t give us a reset. It just keeps the churning alive. As a tennis fan I would liken it to your opponent serving aces and you are just shuffling from one side of the court to the other.
The market has not given us a great clean out in a while but if we can get one between now and the end of June then I think we could shape up with a decent oversold situation in early July. I say break ‘em don’t save ‘em. So far the market bends but doesn’t break.
