It's hard to remember the last time an overbought reading brought the market down so hard. Usually it takes a few days for selling to erupt such as it did on Tuesday. I surely did not expect it to be so violent. But it was.
In fact it was so violent that for the first time since last spring the TRIN moved up over 2. It ended the day at 2.76. You can see on the chart that typically a high TRIN reading coincides with a rally shortly thereafter.
TRIN is short for Trading Index. It is also known as the Arms Index (for my former colleague, the late Dick Arms). It is a calculation that takes the relationship of the advance/decline line and up/down volume into consideration. A high TRIN means there was a lot of selling and a lot of selling tends to mean a cleanout and therefore is bullish.
What is most curious is that during this entire decline there has not been one high TRIN. That is unusual as you can see. It is also unusual for the high TRIN to arrive on the first down day after a rally. Typically it arrives when we have been falling and folks can't stand it anymore.
What tends to go hand in hand with the high TRIN is the fact that down volume on the NYSE reached 93%. Again, that sounds scary but is usually short-term bullish. The reason being that there has been a great deal of selling and once you've sold that much there isn't much more to sell.
In this entire decline we have seen down volume at 90% or greater only once. That was on October 10 when it tagged 90%. The next day the market was down but in the four days thereafter the S&P rallied almost 100 points. Other 90% down days were seen in that spring decline.
Here's what bothers me though. The put/call ratio for ETFs was under 100%. For the seventh out of eight days. This is highly unusual for such a down day. Are folks selling stocks and buying calls? It seems odd to me. And it keeps dragging down the 30-day moving average of the indicator. At first it was easy to ignore because the falling moving average was bullish but at some point it falls too far. There is still some room for it to come down.
I do think we can rally again when we return to work after our day off tomorrow but I don't think we can rally far because of the fact that we just got overbought. That overbought reading needs to get worked off.
Finally, on bonds, we saw the yield on the Ten Year close at 2.92% and the Daily Sentiment Index go to 93. I don't think sentiment on bonds is that bullish yet (anecdotally) but such a high reading so close to the target tells me we're probably close to "enough for now" on bonds.