Warp, Barron's on ARMs: "Positive Portents?" Sept 3.2001
Some indicators point to a rally, but not yet
By ERIN E. ARVEDLUND
[snip]
the ARMS Index may finally be signaling the market is truly "oversold," according to purists who recalculated the widely watched indicator with "stocks-only" New York Stock Exchange advance-decline figures. The NYSE A-D figures used to calculate the ARMS Index and other market indicators may have presented a falsely positive picture this past summer, when the ARMS Index was posting oversold readings of well over 1.2. (Traditionally, any ARMS Index reading below 0.8 signals "overbought" and above 1.2 as "oversold" on the moving average.)
Instead, an ARMS index recalculated with "stocks-only" breadth figures reveals a struggling market with most equities trading lower all summer, says Larry McMillan of McMillan Analysis.
Richard Russell, editor of Dow Theory Letters, was among the first to point out that about 48% of NYSE issues are now preferreds, closed-end funds, foreign stocks, ADRs and warrants. Russell argued that bulls based their argument "on advance-decline figures which are now almost useless and actually deceptive," because non-stocks trade with very little volume and distort important market indicators.
So what is the "stocks-only" ARMS Index saying now? "We're oversold since last Thursday," McMillan says. The 20-day ARMS index was at "monstrous levels, where it's been for months" without any ensuing rallies. The 20-day stocks-only ARMS Index last week popped a bit above 1.2, just now at an oversold level. "It looked like it was oversold all year, but it shouldn't have been that high. Now the correct, stocks-only calculation is finally showing we're oversold," McMillan says.
Investors interested in learning about equity options should attend the Option Industry Council's free seminars. Check out www.888options.com for dates and locations. And you can read up on new rules for single-stock futures at futuresindustry.org; |
