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Strategies & Market Trends : Ask DrBob -- Ignore unavailable to you. Want to Upgrade?

To: bcrafty who wrote (45923)	10/15/2001 2:22:25 PM
From: kleht	Read Replies (1) \| Respond to of 100058

bcrafty: I'm not much help on short-term readings of indicators such as the TRIN, put/call ratios, etc. As I've mentioned before I'm much more of a longer-term investor, but (now) backed up by TA. I brought up the ARMS index awhile ago because it seemed to to be signaling a change coming. Now a lot of people are ready to jump on a really high or low reading of this indicator, and then pronounce some sort of 'all-clear' pronouncement. I don't see it as that simple. I understand that readings of the ARMS index above 1.5 are very bullish. There are very few such readings and generally seem to be accurate. But keep in mind that such readings are definitely leading. I don't know what "deadly accurate" means. There is generally a lag of 2-3 weeks before upmoves occur. Also, such a positive reading does not seem to indicate the extent of any bull move, either in price or time. The first move above 1.5 occurred in March 2001 and was followed by a substantial upmove. You've seen what has occurred subsequently. But I think it's important to look at what else is happening TA and SA-wise. I feel a good indication of a bottom starting to occur is when TA is looking horrendous while SA is looking good (pessimism is rampant). What I feel makes the latest ARMS readings so important is that there have been 3 readings above the 1.5 area this year, with a fourth near-miss. That is a lot of readings and does not occur often. The reading in March was not accompanied by good SA readings. That, however, has changed dramatically with the latest readings. This, I feel, has more legitimacy IMO. No guarantees, obviously. So, what are the latest readings? This indicator, like most indicators, bounces around a lot and may not be a good short-term indicator. I like the ARMS index mainly for the long-term. But what is it saying now, if I were to hazard a guess? It's way down! Maybe it's saying something, maybe not. But I've noticed that this seems to be a typical pattern after extremely high readings. I tend to dismiss subsequent action of the index. But one thing I would say is that a correction somewhere in here is quite likely. The type of bottom may not be finalized as yet. If a V, then a retest would end in a higher bottom. I personally have been looking for a more drawn-out bottom (ala a W). Too many imponderables still out there. But I am encouraged. I have followed the put/call ratio fairly closely for several years. On all rallies in this bear market the daily put/call ratio would almost immediately drop from about .90 (bullish) and above to below .50 (bearish). And the ten-day m/a ratio would head right back down and stay well below the the .60 level. This has not happened lately (currently = .76) Also, unless we get hit far more seriously than the WTC attack, I don't expect any future terrorist attacks to hit the market very hard. Future attacks are expected. No surprise here. I think it's already factored into the markets. We'll just have to wait and see how the market wants to tell its story. Ken