Warp, following is an article that talks a little about the ARMS index (also the "hooker" index):
From: michael finsterwald Friday, Aug 31, 2001 12:47 AM
Respond to of 75739
Bear Market Hooks
Thursday, Aug 30, 2001 8:12 PM
Respond to of 17392
Fleck's excerpts from Richard Russell tonight:
grantsinvestor.com (subscription required)
Richard Russell – DowTheoryLetters.com – 8/29/01:
Not Just Russelling In the Wind "Fabulous news: the US economy grew at a revised annualized rate of 0.2% in the second
quarter. How's that for heart-stirring history!! Corporate profits, however, fell for the 3rd straight quarter.
"Mmmm, since it's supposed to take two quarters of declining GDP to produce a recession, the fact that the second quarter was
up a tiny fraction means that it would take a down third quarter and a down fourth quarter to produce an 'official' recession.
Saved by the bull, oops, I mean the bell.
"The bear gives no quarter. He's out to beat you and me. And he has quite a few tricks up his sleeve, or should I say his paw.
Some of these tricks are what I call 'hooks.' A hook is an item that is calculated to throw you off course. A hook is an item that
keeps you holding in a bear market -- and it keeps you out during a bull market.
Russell's Hook Shots "In a recent site, I listed a few hooks that this bear market has thrown at us. I try to keep my eye on the
ball, and in so doing I hope we have dodged the hooks. What is the 'ball' anyway? The ball is the primary bear trend. The ball is
the bear market. The primary trend of the market and the economy is now down, bearish, heading south. That's the operative
concept and the overriding concept that we must keep in mind. Everything else is secondary. Everything else is chaff in the wind.
Hate Those Hooks, Skewed, Stewed Or Boiled "Let's take a look at a few of these hooks. One is the skewed advance-decline
ratio which has kept so many analysts bullish -- and its still keeping them bullish. A second hook is the daily highs and lows,
which are also skewed by the advance and decline figures. But the bulls love these skewed new highs. A vicious hook is the
combined voice of Wall Street's famed strategists. These are the men and women who keep telling us that the 'upturn is just
ahead' so you better buy this or that stock. These people have now been largely discredited -- but they still keep talking -- and
talking and talking.
Bait The Hook Well, These Dead Fish Will Bite "Then we have the analysts who told us to buy, buy, buy as stocks that they
recommended fell apart. They're still telling us to buy. I guess we could call them 'hookers.' How about the so-called 'leading
indicators?' Why, they've been up four months in a row. Doesn't that mean that the economy should be turning up? Sure it does
-- if this was a bull market. But it isn't. So I don't think the leading indicators are going to work. I think they're just another hook.
Captain Hook "You want a leading indicator that works in bull and bear markets? I'll give you one -- it's called the stock market.
Maybe the biggest hook of all is the Greenspan Fed. Greenspan became a demi-God in the eyes of the American public and
even more ridiculous -- in the eyes of Wall Street. All Greenie had to do was lower rates and flood the markets with liquidity,
and -- and you can bet your bottom dollar that economy will turn up and all will be well. Well, damn it, it always worked before.
Yeah, it worked in a bull market. But now we're in a bear market, and Alan Greenspan and the Fed are just another hook.
"'Hey, Russell, what are you, a Commie or something, talkin' about the Fed that way.' Nah, I'm just talking about hooks, so calm
down. The current light volume is a great hook. We're told, 'never sell a dull market.' That's good advice in a bull market. In a
bear market, it's sheer nonsense, as we can now see.
Playing Hooky With Tech "How about those wonderful tech earnings of a year ago? Turns out that was another hook. The techs
were using what we call 'pro forma' earnings, which means (they) could deduct anything they wanted, call them one-shot
expenses, and show that 'operating earnings' were really pretty good. It got so bad, so flagrant, that even Abby Cohen of
Goldman Sachs announced that, 'the bottom line is that there is no commonly accepted bottom line.'
"But if there is no real bottom line, how do we know what these blasted stocks are earning? The secret -- we don't know. It's
become so bad that last week the Financial Accounting Standards Board asked for public comment regarding whether the
Board should order reforms.
Another Trick-Less Hook "Here's another interesting hook. I call it the 'cycle hook.' Like, isn't there always a 'summer rally?'
Well, most of the time, but not this year – at least so far. So if you loaded up on stocks or if you've just been holding your stocks
waiting for the summer rally to provide you with profits, maybe you should start unloading. Summer rally? Maybe next year.
Russell On Aftermath "'Russell, what makes you so sure that this market is going lower? Why can't the market just stay in this
area until things get better, and then the market will head up again?' Answer -- the market can do anything. But we've had the
most speculative few years in Wall Street history. Values went through the roof and then some. Values reached heights that
nobody would have believed in 1996 when Greenspan talked about 'irrational exuberance.' Wait, sadly I have to tell you that
values are still sky-high. At 26 times earnings, the S&P remains ridiculously overvalued.
Institutionalized Cluelessness "The surest thing in the market is the P/E and yield cycles. To put it another way, stocks become
over-priced and then stocks become under-priced. It's almost a law of physics. A corollary is that investors become too bullish
and then they become too bearish. Right now we're on the slow, agonizing path towards 'too bearish.' But we will have a long
way to go. Will it happen? It doesn't have to, but it is the surest phenomenon in the market. How will it happen? Ah, there you've
got me. I don't know exactly how it will happen. Which is why I write this site six days a week instead of one a month. All I do
on this site is tell the story as we go along, day to day.
"The problem with the market action is clear enough. There's no real desire to buy among the group that leads and moves the
market -- the institutions. At these prices and in view of what lies ahead, the sentiment among the institutions seems to be, 'We'll
wait. And if there's a rally, we'll sell into it.' I just reviewed the daily output of a well-known stock market advisor. This
gentlemen goes over all his indicators such as the short interest and the put/call ratio and the ARMS index. His indicators all
suggest that the market is oversold. 'So why doesn't the darn thing rally?' he asks.
Viva La Difference! "This fellow doesn't understand how bear markets work and how they're different than bull markets. In a
bull market oversold indicators work well, because when a bull market is 'sold out' or 'over-sold,' that's about the time when the
primary bull trend re-assets itself. But remember, in a bear market the shorts, the pessimists, the bears -- are correct. Thus a
heavy short position in a bear market, unlike in a bull market, is a CORRECT position. A short position in a bear market or a
heavy put position in a bear market -- they're aligned correctly and in harmony with the bear trend.
"And that's why they're not working now in calling bottoms. This is a concept that seems to escape almost every technical
analyst. But it's a crucial concept. BEAR MARKETS DON'T WORK THE WAY BULL MARKETS DO. I don't know how I
can put that any more emphatically. Technical analysts, write that down, and post it over your desk in large letters. BEAR
MARKET INDICATORS DON'T WORK THE WAY THEY DO IN BULL MARKETS." |
