One of the neatest measures of the Street's pulse is the Arms Index, a 10-day moving average for the New York Stock Exchange (news - web sites) Composite of all stocks listed on the Big Board. Devised by technical analyst Richard Arms Jr, the index tracks buy and sell orders to gauge the level of pessimism or optimism in the market.
Lately, the index has been giving one of its rare buy signals -- only the eighth signal in its 34-year history, said Hays. The volume of sell orders in declining stocks has been unusually high, which is saying there's intense pessimism among investors, which may presage a market bottom.
Hays says the index's strongest feature is its ability to pick market bottoms. But it can also pick market tops, as it did at the start of the market's crash in March 2000.
``The index has a phenomenal record, and it's batting a thousand,'' says Arms.
When the index is 1.00, the market is in harmony and buy and sell orders are matching up evenly. When the index falls well below 1.00 it says investors are overly bullish. When it rises well above 1.00 it indicates a lot of volume on the sell side of the market and that bearish investors have gone overboard.
Now, the index is at 1.50, and Arms says that whenever it's gone to the level in the past, the market has rallied for months or years, producing gains of 50 percent or more in most case.
``The Arms NYSE index is saying that we are likely to have a good move,'' says Arms from his office in Albuquerque, New Mexico.
Wall Streeters who track the index say there is often a lag between the time the index flags a low and the market rallies. It can still take a month for the market to make its turnaround.
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