On Monday the Arms Index daily reading was 10.13. That is the second-highest reading in history, exceeded only by the one on Feb. 27, 2007. The next highest was at the bottom of the market in the 1987 panic. In other words, on Monday the down stocks received over 10 times their fair share of the volume. That denotes extreme panic selling. As a result, the moving averages were all pushed to very oversold positions, as can be seen on the second chart, below. This is more evidence suggesting we are at or very close to a major market bottom.
Encouraging, also, is the fact that the selloff that produced such a phenomenal Arms Index did not take us to new lows. Moreover, there was no follow-through on Tuesday. This looks like another test of the Oct. 10 low. It still seems to be an area in which to be buying, not selling.
To view a larger version of these charts (in some browsers), after clicking on the "larger image" link below the chart, mouse over the lower-right area of the chart until the icon with four arrows appears. Then click on that icon.
Last week we spoke of the golds as starting to look attractive. Here is another one that I like, Kinross Gold (KGC - commentary - Cramer's Take). Notice the upside volume a few days ago as it went above the resistance level. It even gapped upward before pulling back on lighter volume. The pattern of ascending bottoms is bullish and suggests the stock is headed higher. I think it could be bought around current levels.
(To do my Equivolume charting, as in the charts that appear in this column, I use a charting program called MetaStock. To learn more about this method, read my series of columns, Trading With Equivolume.)
In a market in which most issues are in downtrends, a sideways chart such as we are seeing in Coca-Cola (KO - commentary - Cramer's Take) is unusual. It looks as though it could move higher when the market starts to act better. The two moving-average lines are crossed to the plus side, and so is the MACD. Volume is tending to come in on up moves. A buy-stop order just above the upper line, the resistance line, would bring about an entry into the stock just as it broke out.
Technical Analysis Putting The Euro-Yen Cross-Rate To Work 12/2/2008 9:03 AM EST This metric can suggest international capital allocation with remarkable skill.
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. TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.
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