A Gradual Return to Normal

The low-volume crosscurrents at year-end are giving us little new information. We still have an oversold situation as far as the Arms Index moving averages are concerned. We still are seeing a small sideways move, but within a market that appears to have made a very important low in October and then tested it in November. We are seeing a reduction in volatility and a return to more normal trading. Also, the big last-hour moves that were continually rattling the markets are lessening. There appears to have been a return to a less emotional market.

All this is good, I believe. It makes the bottom in October and the subsequent intense swings look like a bottoming process that is largely behind us. The wide base formed during that time suggests a substantial market advance down the road. The current hesitation could last a while longer, but I believe the next significant move is likely to be to the upside.

---

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.

---

Dow Industrials Metastock

Arms Index Metastock

---

Petrohawk: Buy

Metastock

This is a repeat suggestion to buy. Petrohawk (HK - commentary - Cramer's Take) was suggested on Nov. 5 as it gapped up out of a base. With the markets continuing to be very hesitant, this stock has moved sideways since then, but it still looks very attractive. After a rise on heavier volume two weeks ago, it has pulled back again on lighter trading. The price of Petrohawk was cut in half between July and October, but it looks as though it may be poised to regain much of that loss.

(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.)

---

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.