This column was originally published on RealMoney on March 8 at 8:47 a.m. EST. It's being republished as a bonus for TheStreet.com readers.

The indecision I commented on at the end of last week is still with us. The strength Friday in the Nasdaq took the index back to just about the January highs, where resistance was to be anticipated. Therefore, it is not surprising that the greater weakness in the last few days has been in Nasdaq stocks. I was saying in my last column that I was looking for an eventual further advance because of the lack of overbought indicators. So far the advance has not happened, but it still seems to be likely.

Look at the chart below. The Arms Index's five-day moving average offset an unusually high number Tuesday, so it quickly moved to more overbought territory, but the 10-day continues to suggest a rally is going to come in quite soon.

It is a difficult and directionless market but one that will go somewhat higher, I believe. I am inclined to hold long positions here. The five-day suggests we might not be quite at the buy point yet, but the 10-day suggests we are getting close. (See chart below.)

The takeover news on BellSouth ( BLS) has brought new interest in telecommunications stocks. The entire group is starting to look interesting. The best of the bunch, in my opinion, is Verizon ( VZ). I suggested it as a buy at lower levels on Jan. 6 . After a big runup, it has pulled back on lower volume, and it now seems to be starting to strengthen again. I would be inclined to add to prior longs or establish new long positions around this price level. (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.)


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.


Not Quite at 'Buy'
The Arms Index five-day moving average says 'not quite,' while the 10-day says 'almost'
Click here for larger image.
Source: Metastock


Verizon: Buy


Click here for larger image.
Source: Metastock


PetsMart: Buy


Click here for larger image.
Source: Metastock

That was a great upward move in PetsMart ( PETM) four days ago. It came after a gap, and moved the stock through a key resistance level. That produced a power box to the upside, suggesting a substantial move was starting. I suggested this stock as a buy back on Dec. 28 at a lower level. It now looks as though the anticipated advance has started. The lighter-volume resting phase of the last three days is giving us an opportunity to buy at a better level.


U.S. Steel: Sell


Click here for larger image.
Source: Metastock

In November and December, I suggested buys in various steel stocks for the longer term. Since then, they have moved higher. I still believe they have more upside ahead in the long term but are being stopped in the shorter term. More aggressive traders might want to take some profits in the group, with the intention of coming back in later. I suggested U.S. Steel ( X) as a buy on Dec. 23 and repeated the suggestion Jan. 18 . It looks as though it has run into resistance and could work its way lower. However, it is not compelling enough to suggest a short, in my opinion.


AK Steel: Sell


Click here for larger image.
Source: Metastock

The thinking on AK Steel ( AKS), above, is much like my suggestion for U.S. Steel. Here, though, we have a stock that appears to have gone too far, too fast, and is due for a pullback. Notice the big gap followed by the very square Equivolume entry. The squareness suggests that what we have seen is an exhaustion gap, and that we will need some pulling back and closing the gap before going higher. Again, traders may want to nail down some profits, but I believe the stock is headed higher in the longer term. I would not use it as a short.

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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 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. 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; click here to send him an email.

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