The Market Is Punching at the Ceiling

A look at the first chart below gives an explanation of the indecision in the markets in the last few days. The very impressive rally after Christmas has taken the averages right to a very important resistance level. So it is no surprise to see hesitation as that resistance is encountered.

On the other hand, though, it is gratifying that it has been a hesitation rather than a sharp drop. This is a different market from the one we were seeing in the last few months. No longer is heavy selling coming in on any rally. The implication is that the resistance is likely to soon be broken, and the rise resume.

Volume has been moderate in both directions recently, as the level of emotionalism has receded. That slowing in volatility is another encouraging sign. What I would like to see now is a healthy increase in volume as we move through resistance.

The second chart shows the shorter-term Arms Index moving averages. The five-day became a bit overbought but is now back to neutral, and the 10-day is still oversold. This says that the recent rally has been orderly, producing no extremes. That implies that it has further to go.

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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.

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Dow Industrials Metastock

Arms Index Metastock

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Oracle: Repeat Buy

Metastock

It has been just under a month since I suggested covering the prior short position and going long Oracle (ORCL - commentary - Cramer's Take). It had broken the downtrend line with better volume. We had an additional sign of strength at the end of December when it went up through resistance with increasing volume and a widening of the trading range. Since then, it has pulled back on lighter trading and then started to strengthen again. With MACD on the plus side, it looks as though this stock is headed higher and could still be bought.

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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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