Stock gains: Breakout or stop-running exercise?

TECHNICALS

The S&P traded as high as 1349.55 today, before settling at a new two year high of 1347.24 today, eclipsing the February 18 intraday high of 1344.07. As we have discussed before, a lot of systems trade breakouts and given the market's propensity to gravitate toward levels which generate transactions, it is important for the Bulls to hold 1344.70 for 24 hours, else the rally to new highs was simply an exercise to run the breakout stops.

There are also a lot of traders who trade breakout 'reversals', so the S&P has a good excuse to back and fill for a couple of days in order to take as much money from as many traders as possible before resuming its search for its intermediate destiny. If this level (1344.07) holds for 24 hours, support/resistance theory invokes that it should then become support for any additional consolidation attempts.

TRIN20

Of all the indicators I track, I have received more bearish pattern recognition reads over the last year from the TRIN than any other measure I follow as there continues to be more activity in declining issues than advancing issues. For example, of the nine lopsided volume days in 2011, where up volume either led or trailed declining down volume by a 9/1 ratio, eight of those days have been downside days. There is likely an explanation as to why this has uncharacteristically been the case recently, but I am not the custodian of such knowledge.

I calculate TRIN as the average volume of advancing issues divided by the average volume in declining issues on the S&P 500 so that it replicates a put/call ratio in regards to high numbers above 1 theoretically being bullish and vice versa. This is the inverse of Richard Arms TRIN. TRIN20 is 0.867, suggesting as we stated, there has been more volume in the declining issues than advancing issues over the last month. As you can see below, this has usually led to sluggish forward price action.


TRIN20 ANALYSIS 0.858 - 0.875
TOP 30 IN CHRONOLOGICAL ORDER

# DATE RANK LEVEL 1MT 3MT 6MT 12MT
1 19700205 13 0.868 4.77 -8.50 -10.15 12.84
2 19700430 21 0.870 -6.10 -4.23 2.12 27.51
3 19720128 30 0.858 1.95 3.37 3.09 11.80
4 19740415 23 0.861 -1.74 -8.98 -22.39 -6.25
5 19740709 24 0.873 -0.76 -16.76 -12.65 16.35
6 19741009 18 0.869 10.45 4.94 22.15 30.30
7 19750827 20 0.864 2.08 7.71 18.10 20.19
8 19771102 28 0.875 4.37 -0.64 7.21 5.40
9 19780201 29 0.875 -3.05 8.61 11.93 11.15
10 19791108 17 0.865 7.20 17.60 5.81 28.79
11 19930415 26 0.874 -1.97 0.18 4.71 -0.50
12 19990505 16 0.866 -1.45 -2.49 1.70 6.33
13 20000417 5 0.867 3.31 7.78 -3.67 -14.98
14 20001122 11 0.868 -1.24 -5.26 -0.98 -14.02
15 20010313 10 0.868 -1.18 3.67 -8.78 -3.62
16 20010619 27 0.874 0.41 -16.03 -5.00 -15.71
17 20011003 8 0.867 1.39 8.67 4.95 -23.62
18 20020311 4 0.867 -5.53 -13.24 -22.15 -31.46
19 20020516 3 0.867 -8.28 -15.43 -17.15 -14.02
20 20020815 7 0.867 -4.35 -2.20 -10.25 6.50
21 20040309 19 0.865 -0.11 -0.81 -1.95 5.82
22 20050125 12 0.868 3.68 -0.54 5.19 8.24
23 20070208 9 0.868 -3.21 4.10 3.37 -8.08
24 20071116 6 0.867 0.63 -7.46 -2.29 -40.14
25 20080620 1 0.867 -4.34 -4.77 -32.63 -30.10
26 20080912 22 0.862 -28.16 -29.72 -40.02 -16.69
27 20090107 15 0.868 -4.20 -10.05 -2.83 25.92
28 20090727 2 0.867 4.97 8.27 11.74 13.40
29 20091020 14 0.866 0.03 4.31 10.64 7.98
30 20100104 25 0.874 -6.17 3.98 -9.75 12.11
31 20110426 00 0.875 ? ? ? ?

#UP-DN = 13-17 13-17 14-16 17-13
AVG%CHG= -1.08 -1.91 -4.56 -3.66
MED%CHG= -0.97 -0.73 -1.46 6.08

Wayne Whaley is a Systems Engineering graduate from Georgia Tech who takes an engineering approach to tape analysis. He is a registered CTA, co-owner of Witter & Lester and the 2010 MTA Charles Dow Award winner for research surveying various tape measures. For more insight see www.witterlester.com.

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