I noticed something interesting looking over the past week of trading -- the Nasdaq Composite and technology stocks in particular had their first major multiday plunge of 2017 on June 9. I also noticed that as of last Thursday's close, the Nasdaq Composite's TRIN had been above 1.0 for five straight days. That hasn't happened since January 2016.
As a reminder, the TRIN, or "Trading Index," measures the relationship between the advance/decline line and up and down volume. As such, it's a measurement of what underlying stocks are doing.
Now, a high TRIN typically means that there's been a lot of selling underneath. But we've only seen 10 other instances since 2012 where the Nasdaq Composite's TRIN has gone at least five consecutive trading days over 1.0. And since we haven't seen it happen since 2016, those 10 other instances all occurred within a four-year period between 2012 and 2016, with nothing since then. That's how unusual this particular period has been.
I looked back at each of the prior instances of five days or more of a high TRIN and the one thing they all had in common was that not one of them turned out to be the Nasdaq Composite's near-term low. In every single instance -- even if the index rallied back for a while -- it always came back down.
For example, here's a look at the Nasdaq Composite from 2012:
The index's high TRIN during a July 2012 pullback (the red box at the left above) saw a nice rally -- but then a retest (the green arrow at left). The late August period was mostly sideways, but the TRIN was over 1.0 for six straight days (the red box in the center of the chart above). After that, the Nasdaq Comp enjoyed a fast 100-point rally (3%), but then fell 15% in a hurry. After that, the TRIN had a six-day streak over 1.0 in October (the red box at right), which preceded a few upside days followed by a renewed downside.
Now let's look at the Nasdaq Comp's chart for 2013:
The curious part of 2013 is that we all remember that period as the year when stocks were "nothing but up." So, I thought for sure I'd see no reaction on the chart when I saw not one but two instances of high TRIN readings for the Nasdaq over extended periods. For instance, we got a high TRIN for six straight sessions in March 2013 on days with a totally sideways market (the red box above). The Nasdaq Comp kept going sideways for a while after that, but then plunged in early April, followed by a short rally before a 5% plunge in mid-April (the green arrow above).
And when I looked at the following chart from 2013, I thought for sure the seven-straight sessions of high TRIN readings would have been from early October:
But in fact, they were from late October (denoted with a red box above). Notice here again that this period ended with a plunge in early November (the green arrow above).
It took approximately another year before we saw such an extended period of high TRIN readings (the red box at left below). Look at December 2014, where this led a first to a great rally -- but then the index headed back down for not one retest, but three (the green arrow below):
Then in June 2015, we saw five consecutive readings of high TRINs (the red box at right), followed by a terrific rebound. But not shown on this chart is the Nasdaq's August 2015 plunge, since I figure most of us recall that vividly. The Nasdaq Composite plunged more than 15% in a matter of days back then. Clearly, the index's late June low was not the low. I don't have a chart of this, but that August 2015 plunge saw six straight days where the TRIN was over 1.0. We did rally after that -- but retested our lows in late September.
Lastly, let's look at November 2015:
We saw the Nasdaq plunge amid a high TRIN (the red box at left), followed by a requisite rebound -- but then followed by a January massacre where we saw a high TRIN yet again (the red box the the right). There was a one-day rally after that, but that was followed by renewed downside.
The Bottom Line
Even if we use the Nasdaq Composite's October 2013 behavior -- a small rally followed by a one-day plunge in early November -- as our template, these charts all say to me that if the Nasdaq rallies over the next few days, it's likely to come back down for a retest in the coming weeks.
(This column originally appeared at 6 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Helene Meisler, Jim Cramer and other writers even earlier in the trading day.)