Extending Thursday's afternoon bounce, stock proxies were higher at midday.
A string of positive economic reports topped the list of factors supporting stock prices. These included a much higher than expected Chicago Purchasing Managers report for May (60.8% vs. 55% consensus), a better-than-expected factory orders report for April (1.2% vs. 0.7% consensus), and an upward revision to the University of Michigan's consumer confidence report for May. First-quarter productivity gains were revised down to 8.4% from 8.6%, but that was still the highest reading since 1983's second quarter.
The healthy economic data were also giving a boost to the dollar, which was further aided by another round of intervention by the Bank of Japan. The dollar traded as low as 122.82 yen in New York currency trading on Thursday, below levels where the BOJ intervened last week. But the greenback was lately above the 124-yen level after the BOJ's latest decision to sell yen and buy dollars. The dollar was also higher vs. the euro, which was recently trading at 0.9344 cents vs. yesterday's New York close of 0.9388 cents.
The stronger greenback and higher stock proxies were each helping the other. As of 12:30 p.m. EDT, the
Dow Jones Industrial Average
was up 1%, the
higher by 1.1% and the
In addition to being aided by the economic data, the higher currency and the
abatement of selling pressure, stock proxies gained on a report in
The New York Times
have engaged in "preliminary" merger talks.
Bristol-Myers was recently up 4.3%. Other recently battered big-caps also catching a bid included
The early action was certainly encouraging to those who are long stocks, but it's still early, and clearly geopolitical risks remain high: The State Department urged U.S. citizens in India to leave the country, citing the risk of war with Pakistan.
The possibility of war on the subcontinent was helping gold sustain its rally, although gold-related shares weren't following along.
Arms and the Men
In late April the one-day NYSE Arms Index posted back-to-back trading days with readings above 2.0, a rare "double deuce" that had only occurred 10 times previously in the past 36 years. Since each of those prior occasions was followed by a substantial rally, Arms Index devotees forecast that similar developments were likely to occur, as reported here on
The Arms Index measures the ratio of advancing issues to declining issues by the ratio of advancing volume to declining volume. This ratio of a ratio is a measure of sentiment, which is a contrarian indicator. The two 2.0 readings were considered signs of rampant pessimism and thus bullish for stocks.
Heading into today's session, the Dow was off 0.3% for the month of May, the S&P was down 1.1%, and the Comp was off 3.3%. Not horrid returns, but certainly not the kind of performance that those who believe in the Arms Index's signals were expecting.
The lackluster action following the double-deuce signal has further emboldened Arms Index critics. They contend the rising number of non-equity issues, i.e., preferred stocks and closed-end funds, which trade on the Big Board, have spoiled the index.
I wrote about this in
late August, and little that's transpired since has caused the skeptics to change their view. One emailed recently to inquire how market watchers closely identified with the index have reacted to recent developments. Not surprisingly, the faithful remain unbowed.
No one is more closely identified with the Arms Index than its inventor, Richard Arms. On the
site Thursday, he expressed disappointment in the "dearth of buying interest" of late but remained upbeat about the market's prospects.
"I think it is actually encouraging that was have not seen any panic, and that volume has remained low," he wrote. "That suggests this is still, from a technical standpoint, a test of the low made at the end of April ... a rally from around where we are now would have enough cause for a substantial upward effect."
The five- and 10-day moving averages of the NYSE Arms are "the most oversold we have seen in the past two weeks," and the Nasdaq Arms is also "quite oversold," he reported. In addition, the 21-day and 55-day moving averages "never did move away from the very oversold levels that are saying we should have a stronger market."
Why haven't those longer-term readings (as yet) resulted in stronger market action? Arms didn't say, but he surmised that on both a short- and intermediate-term basis, "these numbers are telling us that we are close to the start of another rallying phase."
The Arms Index is just one signal employed by Don Hays of Hays Advisory Group. But having frequently cited high Arms Index readings as a basis for his longstanding (and ongoing) bullishness, he too has become closely associated with the indicator.
On Tuesday, Hays wrote he'd be "very surprised" if the lows of last Friday didn't turn out to be the worst for major indices "for a few weeks at least and maybe for a long time."
Thursday, he admitted to being "very disappointed this week that the market did not rally," but remained steadfast. "I know from history I'm always frustrated right at the bottom," Hays wrote. "I also see the wall of worry, the measure of sentiment from those investors that are
wrong at the bottom is getting stronger and stronger." (Italics his.)
Among those wall of worry indicators is the Arms Index, whose one-day reading was recently down 1.22 or 65% to 0.66 after closing at a relatively high 1.87 Thursday.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to
Aaron L. Task.