Talk about short-lived rallies!

Did you look at the advance/decline line when the market was at its highs of the day Tuesday? Not exactly impressive. We've seen better breadth on down days than we saw when the market was up yesterday. This has been and continues to be the problem with the upside.

On the downside, the market is currently only moderately oversold. It is not maximum oversold. But that is not the issue here; the issue is that just being oversold is not reason enough to buy.

In a bull market, we want to buy the market every time it gets oversold because the underlying trend is up. But in a bear market, when the underlying trend is down, we typically get oversold and stay there. The best opportunities tend to come when we get overbought, which provides a chance to sell the rallies.

Which brings me back to Tuesday's rally. Sentiment continues to lean just a little too far to the bearish side these days. I described my reasoning in my Friday and Monday columns, but let me expand on the passing comment I made on the 10-day Arms Index, or TRIN. I have read several times that the last time we had back-to-back TRIN readings of more than 2 was Oct. 16 and 19, 1987. That's all well and good, and yes, the exact low was on Oct. 20 that year, but we had a retest of those lows nearly six weeks later on Dec. 4.

Even though the Dec. 4 low that year led to what appears to be a very good rally, the market essentially went nowhere for almost four years after the Crash of '87, if you take into account the highs of August '87. No, it didn't go back down to that 1620 low on the Dow, but we did not convincingly get through the August 1987 high of 2720 until the early part of 1991. (We managed to get back there in 1989 but slipped back under that level several more times for the next two years.)

So for those who want to point to just one indicator as a signal, be sure you understand the sequence of events that occurred after such a signal in the past. In the 1987 instance, it might have been the exact low on an intraday basis, but you actually had the retest in December -- six weeks later -- to know you were right.

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