Strong NASDAQ, Low TRIN: Short-Term Results

First off, I want to thank readers who have suggested ideas for research and who have provided helpful feedback re: this and the Trading Psychology sites. Thanks also to readers who have shown interest in The Psychology of Trading; for it to have cracked the top 10,000 on Amazon three years after its publication is a testament to the enduring relevance of psychology for trading. My new book, Enhancing Trader Performance, is undergoing editing and should be published this fall.

A reader very helpfully pointed out that strong gains accompanied by low TRIN readings are bullish on a next day basis. Recall that my analysis yesterday showed weakness over the intermediate term. Fortunately today provided an opportunity to test the reader's idea: We have closed higher by 2.56% on the NASDAQ 100 ETF (QQQQ) over the past two days. The NASDAQ TRIN during that time has averaged .496.

Going back to March, 2003 (N = 762), I found 81 instances of a two-day rise of more than 2% in QQQQ. Over the next two days, QQQQ was higher by an average .26% (50 up, 31 down), stronger than the average two-day rise of .15% (413 up, 349 down) for the broad sample. When, however, QQQQ was up by more than 2% on a two-day basis and the TRIN averaged less than .50 over that same time (N = 20), the next two days were up by an average of .54% (13 up, 7 down). Score one for short-term bulls and for an astute reader.