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Top Stocks With Helene Meisler

What Is the TRIN Telling Us?

By Helene Meisler | 05/28/15 - 06:24 PM EDT
Stocks in Focus: EBAY, VAL, KTOS, IDRA

The Market

Earlier today I saw that TRIN, the Trading Index, has been over 1.0 for 10 of the last 11 trading days. I have not done extensive work on the TRIN, since mostly I use it to see if there is fear in the market: A high TRIN usually means we had exhaustive-type selling. For example, at the mid-December low, we saw the TRIN stretch up to 3.37 one day.

In late January, again as the market was making a low, we saw it push up to 3.14. So you can see that a high TRIN shows some sort of selling capitulation. The TRIN is derived by measuring the advance-decline line against the up volume and down volume, so a high TRIN means there has been a lot of selling.

When the TRIN is over 1.0 for an extended period, it also means there has been selling, but not of the exhaustive or capitulatory kind. It’s more persistent selling. So if the TRIN has been over 1.0 for 10 of the last 11 trading days, that tells us there has been quite a bit of persistent selling in the last two weeks. Yet the S&P sits right near the top of the range.

I cannot explain to you how it is that there is seemingly so little selling in the indexes, and yet the McClellan Summation Index sits at lows. On the chart below, I have boxed off three declines in the indicator over the last year. I have omitted the October plunge, since it stands out on the chart like a sore thumb.

Notice that the first two times, the S&P followed suit, heading down. But this time the indicator -- which tells us what the majority of stocks are doing -- peaked in late April and yet the S&P continues to creep upward, albeit in what I view as choppy or tiring fashion. But either way, this is a big divergence from previous times; the only other time we saw anything even close was the fall of 2013 (not circled on the chart).

Then there is the number of stocks making new highs. Don’t you think it is a bit ridiculous that a few months ago when the S&P was at 2120, we had 300 new highs, and today we have fewer than 100 new highs? That tells us the market is rallying on narrower and narrower participation. But it’s over on Nasdaq where I am more surprised. Here we have the Hi-Lo Indicator, so it’s a calculation using both new highs and new lows; here we find this is the second lower high since March. Again, this is not the way stocks should act at new market highs.

These charts exemplify to me why a good cleanout to the downside would be bullish. Individual stocks are already being sold; stocks are already on their way to clean out weak holders. A sharp move down would likely finish it off, since it would get the VIX jumpy. It would also likely send the put/call ratio’s 10-day moving average (shown below) back up to the top of the range (indicating an oversold condition). The indicators are already well on their way to getting extremely oversold, so one more push would get them there and it would remove the complacency that exists.

So when I say that they keep saving them, that’s what I mean. You can see saving them has given us one- or two- day rallies and then nothing more. And while the indexes have seen very little selling, those indicators tell us individual stocks have seen plenty of it.

New Ideas

Longtime readers know that I have been a fan of eBay (EBAY) for what feels like years. In an otherwise dreary day, this stock moved up on volume. A breakout over $61 would measure to the $66 area. I’d love to see some follow-through on today’s rally.

Today’s Indicator

The 10-day moving average of the put/call ratio is discussed above. Currently it says be cautious, but then so do many other indicators!


Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that Top Stocks is not intended to provide personalized investment advice. Email Helene here.

I look at the chart of Valspar (VAL) and think in a different market we’d call this a top, especially with that strong reversal/outside day it had on Tuesday. In this market, we’ll just call it a trading range between $82 and $88, so if it comes down a bit more, closer to the lower end of the range, it’s a buy for a rally. Conversely, a rally to the $88 level is a sale.

As we all know, these small-cap stocks tend to have a mind of their own and do not trade the same way as large- cap stocks do, thus I am always leery of them. Yet I stare at this chart of Kratos Defense & Security Solutions (KTOS) and then a move up and through $6 would be a breakout of an extended base that would measure to about $7, and longer term near $8. In percentage terms, that is quite a move. If it captured some volume on the move up, it would be even better.

Idera Pharmaceuticals (IDRA) is trying to bottom, but it looks to me to be quite early. So a move up over $3.75 would find resistance. If that was then followed by a pullback to $3.25-$3.50, the chart would then have a head-and-shoulders bottom drawn out and it would also give the chart more time to develop a small bottom. I have drawn in gray how it might play out.

Regards, Helene Meisler

There's a Big Change in the Chatter
Stocks in Focus: KLAC, FXY, IBB, SEAS

After rally, we may be in for more downside soon.

05/27/15 - 06:26 PM EDT
How Can I NOT Talk About the Transports?
Stocks in Focus: APA, XOM, GLD, MNST, RL, TASR, X, KLAC, JNJ, CL

Everyone finally sees them as a problem.

05/26/15 - 06:31 PM EDT

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