Volume Analysis & Market Breadth Flashcards

The Arms Index (TRIN) is calculated as:

Answer: (Advancing issues / Declining issues) / (Advancing volume / Declining volume)

TRIN divides the ratio of advancing to declining stocks by the ratio of advancing to declining volume, with readings below 1.0 indicating bullish conditions and above 1.0 bearish.

A 'breadth thrust' occurs when:

Answer: An extremely high percentage of stocks advance strongly over a short period, signaling a powerful new uptrend

A breadth thrust is a rare, powerful bullish signal where advancing stocks overwhelm declining stocks (often 90%+ advancing) in a short window, indicating broad market strength.

What does the McClellan Oscillator measure?

Answer: A smoothed difference between advancing and declining issues using two exponential moving averages

The McClellan Oscillator applies a 19-day and 39-day EMA to the daily net advance-decline figure, creating a momentum oscillator of market breadth.

When the majority of stocks in an index are declining but the index itself is rising, this divergence suggests:

Answer: The rally is narrow and driven by a few large-cap stocks, which is a bearish warning

A rising index led by only a handful of large-cap stocks while breadth deteriorates is a classic warning sign that the underlying market is weakening beneath the surface.

In volume analysis, what does 'accumulation' typically look like on a chart?

Answer: Higher volume on up days and lower volume on down days over a period

Accumulation is identified by above-average volume on advances and below-average volume on declines, indicating that buyers are absorbing supply and building positions over time.

The 'new highs minus new lows' indicator is used to:

Answer: Gauge the internal strength or weakness of a market by tracking momentum leadership

When new 52-week highs significantly outnumber new lows, it confirms broad market strength; a shift toward more new lows signals deteriorating internal market conditions.