Pierre Bernier who has posted VIXEE here several times has now sent me word and a graph of TRINEE. They are, respectively, rationalized versions of the 2CS (five day running total of daily product of VIX and CBOE P/C ratio) and the TRIN or Arm's ratio:
"Hi Tom,
Today VIXEE fell, by a small fraction, to a new bull market low of 12.4%. Confidence being this high means that we should see a correction soon. How important should that correction be ?
I’ve been doing some research on TRIN. Since TRIN by construction is skewed, I took LOG10 of the inverse of TRIN. This takes care of the skewness and the inverted direction. I multiplied the result by 5 to give the values some amplitude and added 0.5 to center the values on 50%. I have defined TRINEE as the SMA(50) of those values. When TRINEE goes up, we see accumulation going on, and when it goes down, distribution. We can also see a big sine wave lasting 4 to 7 months.
Looking at VIXEE and TRINEE along side, we see that when VIXEE gets to a new low, there is a correction not to long afterwards. If VIXEE gets to that new low when TRINEE is at a high value (accumulation has been going on), the correction is small but, when VIXEE gets to that new low when TRINEE is low (distribution has been going on), the correction is bigger.
TRINEE has gone from 19% to 64% since the February lows. Lots of accumulation. The coming correction should therefore not be so bad.
Let’s wait and see.
Regards,
Pierre"
Click on the graph for a larger version. Using Bernier's explanation of a rising TRINEE as evidence of accumulation and the opposite for a falling TRINEE leads to some very interesting insights. The two previous peaks (>60) in TRINEE were in May 2009 and September 2009. In both cases rather leisurely distributions led to multi-month sideways moves in three waves. Curiously, VIXEE (and 2CS) slowly declined during the sideways moves.
Currently VIXXEE has fallen to 12.4 (and 2CS to 58) within the last week, and that's about as low as they tend to get, barring a repetition of the slow grind up and eventual bubble of 2004-2007. It would be fascinating to see what TRINEE did from 2000 on and especially after 2003. From what we do know, it does appear that some sort of topping pattern will emerge with TRINEE above 60.
Thanks very much to Pierre Bernier both for the VIXEE update and this intriguing new TRINEE!
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