What is the 'Arms Index - TRIN'?
A
technical analysis indicator that compares advancing and declining stock issues
and trading volume as an indicator of overall market sentiment.
The Arms index is calculated as follows:
TRIN
= (advancing issues/declining issues)
(volume of advancing issues/
volume of declining
issues)
TRIN indicator is the ratio of advance/ decline with advancing and declining
volume. We have been using this indicator to understand overbought and oversold
level. The chart of TRIN suggests that the zone of 1.2-1.3 is the extreme
oversold level.
We can see that
in the mid of June as well as in the start of September 2015 reversal was
witnessed from this zone. Hence, this indicates that lot of volume has already
gone on the downside and Nifty is now trading in oversold territory. One should
use this kind of indicators as a warning signal but it will be only on break of
resistance on upside we will get positive confirmation.
Nifty
60 mins chart:
The above chart shows the
internal Elliott wave counts of Nifty along with crucial levels (shown in
actual report). Nifty had a Gap up opening in today’s session and is so far
sustaining above the same. It will be important to see if the crucial
resistance is now taken out for short term positivity to continue.
Such oversold readings on
indicator can result into sharp reversals and we have seen that over past few
days when majority was expecting capitulation to continue, markets has been
surprising them by Gap up moves.
It therefore becomes important
to apply different techniques like Channels,
Pivot support resistance zone, Elliott wave, indicators like TRIN, RSI, etc
Time concept of Neo wave to understand the maturity of trend.
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