Monday, July 7, 2014

TRIN Arms Index Versus SPX Daily Charts Indicates Market Top

The bulls keep pushing markets higher with the obscene Fed and other central banker easy money. The Arms Index falls into the basement late last week as the upside market orgy, that would make Caligula blush, continues. The green circles show market bottoms and the red circles show market tops. Do you notice a pattern? What do you think will happen?

TRIN is very important especially for day traders. Last week when the markets were selling off the TRIN was under 0.70 so it was obvious the bulls would recover and send markets higher, which they did. One is neutral where neither bulls nor bears are favored. Below one and the bulls are firmly in charge and way below one (under 0.70) shows an excessive euphoric rally in play where a market top typically occurs. Conversely, above one and the bears are in charge of equities for that day creating selling action. A push way above one (1.70, 2, 3 and higher) indicates panic (during serious market selling events the TRIN can print above 10 and higher verifying pure panic) and out of control selling that will place a market bottom and begin a recovery rally. The market bottom calls are much easier with the TRIN as the spikes directly correlate to the bottoms give or take a few hours. The market top calls are trickier, however, since sometimes a few days may occur, with double lows, to properly indicate the market top. So the expectation would be for equities to top out this week perhaps today.

The TRIN is at 0.56 at off-the-charts euphoric lows so a market top is at hand. The selling in equities would be expected to continue until the TRIN recovers back above 1.70 and higher and the subsequent market bottom will be identified when TRIN prints in the 1.70-3.00 range. As a side note, the rising wedge pattern for the SPX has been highlighted for the last few weeks and months. Price is at the apex of the wedge and has actually spiked above the upper trend line. Remember, the collapses from rising wedges can be quite dramatic.

If you believe in the bull case for equities, make sure you monitor the markets 24/7 and have a firm plan in place going forward to handle drastically falling stock prices. A rising wedge collapse gels perfectly together with a market that is pumped higher with the Fed and other central banker easy money. Nearly everyone is raping the stock market upside with the easy money policies and once things turn and the markets head south, most will want to lock in profits and throw longs overboard which would create a vacuum in markets and lead to a rising wedge pattern collapse. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

Note Added 5:33 AM on 7/8/14: The bears push markets lower yesterday and spike the TRIN to 1.71 closing at 1.42. This level represents steady-eddy orderly market selling; no panic at all. The TRIN will likely need to close above 1.70, or 2.00, or higher, as discussed above, to identify a near-term bottom.

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