A lot can happen in a week…. clearly. While the market was seeing a little turbulence two weeks ago, it was nothing out of the ordinary, and certainly nothing that suggested the long-standing rally was in jeopardy. The 6.4% dip last week caught many investors with their pants down, reminding them to assume little, and never stop playing good defense.  

So what’s next? More of the same torture, or are the bulls ready to stage their rally? How about a mix of both, depending on the timeframe?

We took a look at how to the use an exchange’s Trading Index - or TRIN - back on April 2nd. At the time, we observed how a long-term moving average of the NYSE’s Trading Index was approaching dangerous overbought levels, and that a pullback was around the corner. The market peaked about a week and a half later, right around the same time that long-term TRIN average hit its lower Bollinger band and started to move upward again. And now, it’s clear the S&P 500 started to wave red flags of this rollover about the same time.

Not that the TRIN data and its interpretation isn’t without its inherent problems (namely, inconsistency), but in this case we can see its predictive power… especially if used in conjunction with other tools.

So what’s the NYSE’s TRIN reading telling us now? It’s time to add some layers of detail to the tool.

While we first used it as a long-term reversal spotting tool, by shorting the moving averages of the TRIN data, we can use it as an intermediate-term and a short-term trading tool as well. On the chart below, we’ve done just - the TRIN’s short-term average is the red line, and the intermediate-term average is the blue line. And, like last time, the long-term average is the green line. The interpretation doesn’t change though…. an excessively-high reading (for any timeframe) is actually bullish, and an excessively low reading (for any timeframe) is bearish.

With that in mind, take a look at all the NYSE’s TRIN averages, as of Friday’s close.

See anything interesting? If you see the short-term and intermediate-term TRIN averages as being too high [and back up to known ‘extreme’ levels that tend to coincide with a market bounce], then you’re right.

What this means: In the short run, the market is due for a bounce. Makes sense. Last week’s pounding was heavy, and possibly overdone. When the red and blue lines below start to point lower again, that will likely mean the end of any dead-cat bounce.

Longer-term though (the green line) we can see the long-term TRIN average is just now starting to move up and off its bottom, telling us the bears aren’t anywhere close to done yet in the grand scheme of things. Only when that line hits its upper band line will the needed ‘bigger-picture’ breadth/depth balance be found. Until then, the overarching pressure should be bearish - the short-term bullishness will only be a blip (though possibly trade-worthy).

While most traders tend not to think in multiple timeframes like this, they should. Understanding where the high and low spots are within a longer-term trend, in addition to knowing what the true trend actually is, can save and make a small trading fortune.

We’ll follow up with this chart - in all three timeframes - as needed in the future.

If you’re not signed up for the free Micro Cap Press newsletter, then you’re not getting this kind of insight and outlooks. (This is something the mainstream media wouldn’t even dare to touch.) Stop missing the ‘good stuff’ …. register today.