This market sentiment indicator shows the relationship between large block trades, which are trades of more than 10,000 shares, and the total volume on the New York Stock Exchange. The comparison of large block trades to total volume shows how active the large institutional traders are.
The higher the Large Block Ratio, the more institutional activity is taking place. To smooth out the day-to-day fluctuations, I recommend plotting a 20-day moving average of the Large Block Ratio.
A high number of Large Block trades in relation to total volume often coincides with market tops and bottoms. This occurs as institutions recognize the extreme overbought or oversold conditions of the market and place trades accordingly. Of course, this assumes the institutions know what they are doing!
The following chart shows the New York Stock Exchange Index and the Large Block Ratio.
I drew vertical lines when the Ratio was relatively high. You can see that these points coincided with intermediate-term peaks.
The Large Block Ratio is calculated by dividing the number of large block trades by the total volume on the New York Stock Exchange.