Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Another Warning Bell Rings for the Stock Market

Stock-Markets / Stocks Bear Market Jun 09, 2010 - 08:36 AM GMT

By: Claus_Vogt

Stock-Markets

Best Financial Markets Analysis ArticleA short four weeks ago, the stock market impressed us with what was later dubbed a flash crash — a sudden 1,000 point plunge in the Dow Industrial Average, followed by an equally fast retracement of half the decline. Impressive, indeed, but also an important technical sign.


My interpretation of that episode is that it was a typical warning crack …

A warning crack appears at the end of a bull market’s move. It’s a sign that the character of the market has changed; that the topping process has started. It’s like ringing a bell, a harbinger of what the future holds. And the severity of this particular warning crack is a sign of the severity of the bear market ahead.

Then last Friday, another warning bell sounded …

On the surface, Friday’s 323 point loss for the Dow was not that impressive. We’ve seen much larger drops in past years, especially in 2008. But beneath the surface, this decline was very impressive, making it one of the outstanding events of the last 50 years.

You see, the stock market is much than the major indexes are mirroring. It’s also …

Market breadth measures the number of stocks rising and falling.
Market breadth measures the number of stocks rising and falling.

A Market of Stocks

There are technical indicators based on this reality. These are found by using market breadth data — the number of rising and falling stocks and the respective volume figures.

The Arms Index is one of those breadth-based indicators. It’s calculated with the following formula:

_(advancing stocks/declining stocks)_ (volume of advancing stocks/ volume of declining stocks)

This helps me look beneath the market’s surface: A ratio of 1 means the market is in balance. Higher than 1 tells me that more volume is moving into declining stocks. And lower than 1 means more volume is moving into advancing stocks.

During bull markets, the Arms Index rises above 3 every now and then. That usually indicates the end of a correction and thus a buying opportunity.

In bear markets, defined as markets with falling 200-day moving averages, an Arms Index above 3 still signals oversold market conditions. But the buying opportunity is often just a short-term one and much less reliable than in bull markets.

The History of Double-Digit Arms Index Readings …

The chart below shows you the history of the Arms Index since 1980.

NYSE ARMS Index Chart

During this 30-year span (it’s also true going back 50 years) the Arms Index rose into double-digit territory only four times:

  • October 19, 1987, Black Monday, the day the Dow plunged over 22 percent in one of the most infamous stock market crashes in history.
  • October 27, 1997, which turned out to be the stock market’s low during the Asian financial crisis.
  • February 27, 2007, this marked the low of a short, but hefty correction.
  • June, 4, 2010, last Friday.

The first three instances turned out to be either outstanding or — in the case of 2007 — good buying opportunities. So does Friday’s reading of 13.22 signal another buying opportunity?

A Major Difference in the Big Picture

Friday's high Arms Index reading indicates the next move is bound to be bearish.
Friday’s high Arms Index reading indicates the next move is bound to be bearish.

Let’s first address the major difference between 1987 and 1997 on the one hand and 2007 and 2010 on the other …

The first two instances happened during a long-term bull market that began in 1982 and lasted until 2000. Both signaled longer-term buying opportunities.

The latter two took place during a long-term bear market that began in 2000 and will probably last a few more years. The one in 2007 signaled a short-term opportunity. And that’s exactly what I expect from the most recent occurrence. It’s marking only a short-term low.

In the bigger picture, last Friday’s stumble serves as another warning sign that the next major market move will be a severe bear market. A bear market as severe as or even worse than the 2007-2009 bear market, which was heralded by the record-breaking Arms Index reading in February 2007.

Keep in mind, though, that like all technical indicators, the Arms Index is not infallible. It has to be interpreted in the context of the bigger picture. And as you have just seen, this bigger picture is unequivocally bearish.

Best wishes,

Claus

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Liam
10 Jun 10, 00:04
bear repeating

you said the same on Feb 3rd when stocks bottomed, a great contrary indicator

http://www.marketoracle.co.uk/Article16979.html


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014