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S & P 500 Index - Daily Trin, ARMS and Open ARMS

Closing prices for 10/20/14

Trin, ARMS and Open ARMS for the S & P 500 Index Daily Data Period
 
TRIN, ARMS and Open ARMS
TRIN, ARMS and Open ARMS
ARMS Index Calculation (TRIN):

Advancing Issues / Declining Issues
Advancing Volume / Declining Volume

 
This calculation is often averaged as displayed in the above chart showing the 4 and 10 day (moving average) ARMS Indexes.

Overview:

The Arms Index is a market indicator that shows the relationship between the number of stocks that increase or decrease in price (advancing/declining issues) and the volume associated with stocks that increase or decrease in price (advancing/declining volume). It is calculated by dividing the Advance/Decline Ratio by the Upside/Downside Ratio.

The Arms Index was developed by Richard Arms in 1967. Over the years, the index has been referred to by a number of different names. When Barron's published the first article on the indicator in 1967, they called it the Short-term Trading Index. It has also been known as TRIN (an acronym for TRading INdex), MKDS, and STKS.

Interpretation:

The Arms Index is primarily a short-term trading tool. The Index shows whether volume is flowing into advancing or declining stocks. If more volume is associated with advancing stocks than declining stocks, the Arms Index will be less than 1.0; if more volume is associated with declining stocks, the Index will be greater than 1.0.

The Index is usually smoothed with a moving average. I suggest using a 4-day moving average for short-term analysis, a 21-day moving average for intermediate-term, and a 55-day moving average for longer-term analysis.

Normally, the Arms Index is considered bullish when it is below 1.0 and bearish when it is above 1.0. However, the Index seems to work most effectively as an overbought/oversold indicator. When the indicator drops to extremely overbought levels, it is foretelling a selling opportunity. When it rises to extremely oversold levels, a buying opportunity is approaching.

What constitutes an "extremely" overbought or oversold level depends on the length of the moving average used to smooth the indicator and on market conditions. Table 5 shows typical overbought and oversold levels.


Open ARMS Index Calculation:

10 Period Moving Average of Advancing Issues / 10 Period Moving Average of Declining Issues
10 Period Moving Average of
Advancing Volume / 10 Period Moving Average of Declining Volume

Overview:

The Open-10 TRIN is a smoothed variation of the Arms Index. It is a market breadth indicator that uses advancing/declining volume and advancing/declining issues to measure the strength of the market.

Interpretation:

The interpretation of Open-10 TRIN (also called the Open Trading Index) is similar to the interpretation of the "normal" TRIN.

Readings above 0.90 are generally considered bearish and readings below 0.90 are considered bullish.

 

     
 
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