Market Appears More Resilient to Bad News

We appear to have had a major shift in market sentiment in the last few days. Before this week, the market was being bombarded with negative news and reacting by plunging lower. Now we still are getting the bad news, but the market is failing to react to it. On Wednesday, for example, a new spate of negative developments led to a weak opening, but not as weak as one might expect, and within a short time we moved away from the lows, and then into positive territory. That is very encouraging action, the sort usually seen as markets turn higher.

In the meantime, the Arms Index moving averages are still in oversold territory, albeit not as much as they were on the low. Moreover, we have seen a decrease in volatility, which is something we need.

The double bottom of Oct. 10 and then last week has developed well and continues to reinforce the contention we have been voicing since mid-October that a major turn is in the process of formation. The long side still looks like the place to be.

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Dow Industrials

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Source: Metastock

Arms Index

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Source: Metastock

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Barrick Gold: Buy

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Source: Metastock

Suddenly all the gold stocks are emerging as interesting situations. This one, Barrick (ABX - commentary - Cramer's Take), is a good example. After a sideways move with rising lows over the last few weeks, it broke out with heavy volume and a widening trading range. It has gone through the old highs and looks as though it is headed higher. The two volume-adjusted moving averages have crossed to the plus side and so has the MACD across the top of the chart. It looks like a buy around current levels.

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Goldcorp: Buy

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Source: Metastock

Here is another example of the interesting charts emerging in the gold stocks. Goldcorp (GG - commentary - Cramer's Take) showed enough strength in the last few days to gap upward twice and move through resistance on heavier volume. The descending trendline has been decisively penetrated. It looks like a buy around this level. I would want a stop order as protection and would put it below the lows of last week.

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At time of publication, Arms had no positions in the stocks mentioned.

Richard Arms is a renowned stock market technician who invented the Arms Index (often referred to as the TRIN), which has become a mainstay of market analysis, appearing in The Wall Street Journal and Barron's. Arms also developed the widely used technical method Equivolume Charting. Since 1996, he has been publishing the Arms Advisory newsletter for money managers and financial institutions. He also has authored Stop and Make Money: How to Profit in the Stock Market Using Volume and Stop Orders, Profits in Volume, Volume Cycles in the Stock Market, Trading Without Fear and The Arms Index, and has been honored with the Market Technicians' Award for Lifetime Contribution to Technical Analysis. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Richard appreciates your feedback; click here to send him an email.

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