The Volume Trend Oscillator (VTO) is a representation of the net on-balance volume (OBV) trend for all the stocks in the a given market index. We track the VTO for the S&P 100 Index (OEX) and use it as our primary volume indicator for the broad market.

The exact calculation method is proprietary, but essentially each day Decision Point calculates the OBV trend for each of the stocks in the S&P 100 Index. Rising OBV trends are assigned a value of +1, declining trends -1, and neutral 0.

The maximum theoretical range is between +100 and -100, and the VTO daily value actually represents the net percentage of stocks within the market index that are rising or falling. Historical maximums are about +93 and -73, but the normal expected is between +80 and -33.

The VTO is useful in picking tops because volume trends normally begin deteriorating in advance of price tops. This happens because, except in the case of a high-volume blowoff top, volume will gradually contract as prices approach tops -- rather like the dissipation of kinetic energy from a projectile reaching the top of its arc.

The VTO can also help confirm market bottoms by having bottoms in the area of -33 or lower. However, VTO bottoms usually lag market bottoms, so it is not a good indicator for anticipating market bottoms. Nonetheless, deeply oversold bottoms on the VTO (-33) are an excellent indication that the market has probably completed an intermediate-term down trend and is in the process of beginning a new intermediate-term up trend.

A "normal" VTO cycle is for it to move from a bottom in the -33 area to a top in the +50 area then back down to a bottom in the -33 area. The trip from bottom to top takes about 40 market days, and the trip back down to the bottom takes about 20 market days -- about a three month round trip. While this kind of movement is "typical", there can be significant departures from it.

In a very strong market the VTO will remain above zero almost all the time, going only slightly minus infrequently if at all. This happened in 1993 and again in 1995.