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TRIN (Arms Index)
Richard Arms developed the TRIN, or Arms index, as a contrarian indicator to find overbought and oversold levels in the market. Because of the way it is calculated, the TRIN has an inverse relationship with the market. A rising TRIN number is bearish and a falling TRIN is bullish. Often the TRIN is shown inverted to reflect this inverse relationship. A TRIN above 1 indicates that the volume in declining stocks outpaced the volume in advancing stocks. A TRIN below 1, indicates the volume in advancing stocks outpaced the volume in declining stocks.
New TRIN interpretations have developed over the years. Richard Arms, uses the TRIN to find extreme conditions in the market. He considers the market to be overbought when the 10-day moving average of the TRIN declines below .8 and oversold when it moves above 1.2. Other interpretations use the direction and absolute level of the TRIN to determine bullish and bearish scenarios. The TRIN can remain oversold or overbought for extended periods of time, in momentum driven markets,
Advance - Decline Line
AD Line is a popular indicator of market breadth that is used to help determine the direction of the stock market. Since this indicator includes price data from the entire market, analysts often prefer using it to gauge the strength of the market as a whole.
It is calculated each day by taking the difference between the number of advancing stocks and the number of declining stocks. If that difference is positive, the AD Line goes up by that amount. It is a running cumulative total of the number of advancing stocks minus the number of declining stocks. Therefore, a rising AD Line implies that most stocks are advancing (bullish), while a falling AD Line implies that most stocks are declining (bearish).
Plotting the AD Line allows insight into market strength. When compared to a market average such as the S&P 100, divergence from that average could be an early indication of a possible trend reversal.
by Sherman and Marian McClellan, is a breadth indicator reflecting each day's net advances, the number of advancing issues less the number of declining issues. Subtracting the 39-day exponential moving average from the 19-day EMA of net advances forms the oscillator.
Buy and sell signals are generated as well as overbought and oversold readings. Usually, readings above +100 are considered overbought and below -100 oversold. Buy signals are generated when the oscillator advances from oversold levels to positive territory. Sell signals are generated on declines from overbought to negative territory. Traders may also look for positive or negative divergences to time their trades. A series of rising troughs would denote strength, while a series of declining peaks weakness.
New High - New Low Index (NH - NL)
This widely followed indicator tracks the numbers of market leaders through the stocks which have reached new highs or lows for the year, measured daily. New high numbers reflect the leaders in strength and new low in weakness. When NH - NL advances and declines in tune with prices, it confirms the trends. When divergences occur, it's a sign of a top or bottom forming in the market.
As Dr. Alexander Elder metaforically put it in his book "Trading For A Living" (1993): ..."You can visualize the 2000 stocks on the New York Stock Exchange as a regiment of 2000 men. If each stock is a soldier, then new highs and new lows are the officers. New highs are the officers who lead the attack up a hill, and new lows are the officers who are deserting and running downhill. There are no bad soldiers, only bad officers, say the military experts. The New High - New Low Index shows whether more officers lead the attack uphill or run downhill.
When NH - NL rises above its centerline, it shows that bullish leadership is stronger. When NH - NL falls below its centerline, it shows that bearish leadership is stronger. If the market rallies to a new high and NH - NL rises to a new peak, it shows that bullish leadership is growing and the uptrend is likely to continue. If the market rallies but NH - NL shrinks, it shows that the uptrend is in trouble. A regiment whose officers are deserting is likely to turn and run.
A new low in NH - NL shows that the downtrend is likely to persist. If officers are running faster than men, the regiment is likely to be routed. If stocks fall but NH - NL turns up, it shows that officers are no longer running. When officers regain their morale, the whole regiment is likely to rally."...
A good example of its alerting power is when the OEX in Oct. 2002 tested the July 2002 low in prices, while a strong bullish divergence was observed in the NH - NL Index. A Double Bottom in prices and such a divergence, is a strong indication of a market turn coming.