This story was originally published on


on June 8 at 8:00 a.m. EDT.

As I have been observing in the last few columns, the markets continue to oscillate within a trading range. In the


, we have seen numerous swings of nearly 100 points in the last week.

On Friday, the major averages closed very close to the bottom of the range, making it look as though we might see a downside breakout.

Then, after an indecisive session Monday, the action on Tuesday took all the averages right up to the top of the range, suggesting an imminent upside breakout. Instead, though, the high level also was refused.

Particularly interesting is the


. Tuesday, when the other markets gave up a large part of their early gains, the Nasdaq went all the way back to negative territory. A market that had been overperforming is now underperforming.

(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


The VIX went to a very low level during Tuesday's session, indicating the pervasive complacency. Such a lack of fear is, in itself, bothersome. Bull moves develop by overcoming fear.

This still is an indecisive market. Volume has continued to dry up. And the shorter-term Arms Index moving averages have gone to a more neutral stance from the very overbought numbers we were looking at when the standoff started. However, the longer-term numbers are very overbought, suggesting the next move is more likely to be on the downside than 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.

Easy Come, Easy Go
The Nasdaq has gone from overperforming to underperforming.

Click here for larger image.

Source: Metastock

General Mills (GIS:NYSE): Buy

General Mills

(GIS) - Get Report

is a high-quality stock that recently has acted well with regard to its technicals. We have started to see volume come in on the upside. It has broken through a key resistance level, and did so with increasing volume and a widening trading range. It pulled back on lighter volume last week and now is strengthening again. It looks like a buy around current levels.

Ethan Allen (ETH:NYSE): Buy

One of the first things to observe in looking at the technical condition of a stock is the location of the higher volume. As we can see in the chart of

Ethan Allen

(ETH) - Get Report

, volume has shifted from the downside to the upside in the last month. That suggests that a significant change has occurred. The stock has moved up quite sharply recently, and may need a lighter-volume pullback before it goes higher. I would be inclined to treat such a pullback as a buying opportunity.

ConAgra (CAG:NYSE): Sell

The break Tuesday in


(CAG) - Get Report

broke a support level that has a long history, going back to late last year. Not only did ConAgra drop through that important level, but it gapped down and dropped on increasing volume and a widening trading range. The implication is that ConAgra is headed lower. I would expect a lighter-volume rally or resting phase before the decline goes much further, to be followed by a resumption of the drop.

Kerr-McGee (KMG:NYSE): Short

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In late May, I suggested selling



short if it had a lighter-volume rally. That was a follow-up on an earlier sell suggestion as the stock came off its top. Now it has had the expected light-volume rally, which makes it look like a good time to put on a short position.

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



. 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

Profits in Volume


Volume Cycles in the Stock Market


Trading Without Fear


The Arms Index

, and has been honored with the Market Technicians' Award for Lifetime Contribution to Technical Analysis. At the time of publication, he had no positions in stocks mentioned in this report, although holdings can change at any time. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Richard appreciates your feedback;

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