Market Breadth
Unfortunately the TRIN has some flaws. One it is that it sometimes misrepre-
sents real demand in the markets. A high ratio of 3.0 basically means that the ad-
vances are not accompanied by a corresponding increase in net advancing volume.
But this is not always true. The advance/decline ratio may be 8 and the up volume/
down volume ratio may be 2.6. A ratio of 2.6 may represent an advancing vol-
ume of 2.6 million over a declining volume of 1 million shares, or it could also
represent advancing volume of 26,000 over a declining volume of 10,000 shares.
Hence it does not account for the numbers behind the ratios, and as such may
misrepresent demand in the markets. A version called the Modified Arms Index
was created to try to resolve this by smoothing the sum of the difference between
the product of advances and the up volume less the product of declines and the
down volume, over a specified number of days.the tiCk indicator
Figure 22.12 shows a chart of the NYSE TICK indicator. The TICK tracks the
difference in the number of stocks that are trading on an uptick versus those on
a downtick. The TICK tracks the frequency of transaction rather than the actual
volume of a transaction. It is generally regarded as a short‐term indicator. From
the chart, we observe that the market tends to decline on increased TICK volatility.
This can easily be tracked using a 2‐sigma filter, that is, the upper Bollinger band,
as a filter for TICK volatility. Another way of gauging TICK volatility is to observe
the width of the TICK bars. Greater widths are an indication of larger volatility,
and consequently a potential for a market decline. Upper‐band penetrations rep-
resent overbought conditions.figure 22.12 NYSE TICK Indicator Signaling Potential Bottoms in the Broad Market.
Courtesy of Stockcharts.com