INDICATORS
The Thrust Oscillator
Find Those Market Tops
by David Hawkins
When is a rally just a rally, and when is it the end of a bear market?
The long-term bear market that started in
the year 2000 has been punctuated by several intermediate-term rallies,
each of which, so far, has failed to bring down the bear. When you're within
such a rally, you don't know if it is the end of the long-term bear or
if it's just another intermediate-term rally that will fail. You need an
indicator, something that will give a signal when a rally is running out
of steam and is getting ready to roll over.
THE THRUST OSCILLATOR
The idea for such an indicator came while I was perusing Tushar Chande's
STOCKS & COMMODITIES article "Market Thrust," in which he
introduced the thrust oscillator (TO). The oscillator is his improvement
on the Arms index (also called the TRIN). I thought that if the TO works
better than the TRIN, then perhaps a moving average of it will show a bearish
divergence with the market when an intermediate-term rally is topping out
and getting ready to turn down.
The Arms index uses market breadth data to calculate an indicator of
underlying strength (or weakness) in the market. Breadth data is represented
by:
AI = # of advancing issues
AV = the volume of the advancing issues
DI = # of declining issues, and
DV = the volume of the declining issues.
The Arms index (Trin) is defined as the ratio of two ratios:
Trin = (AI/DI) / (AV/DV)
The TRIN is neutral at 1, becomes bullish moving from 1 down toward
zero, and is bearish when moving in the positive direction above 1.
Chande noted several difficulties with TRIN. First, it is asymmetric:
The bullish range is bounded, extending from 1 down to zero, but the bearish
range is unbounded, going from 1 on up without limit. Second, the bullish
and bearish directions of the Trin are the opposite of what you would expect.
...Continued in the July 2003 issue of Technical Analysis
of STOCKS & COMMODITIES
Excerpted from an article originally published in the July 2003 issue
of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2003, Technical Analysis, Inc.
Return to July 2003 Contents
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