ARMS TALK

Our friend Dick Arms seems a bit worried this morning in light of his comments on realmoney. Dick says:

"It is still a very hesitant market. In spite of the breakout of most of the averages above the January highs, the Nasdaq has been unable to get anything going and is still fighting a resistance level.

Tuesday was particularly disappointing, as an early rally was erased and followed by a decline. Moreover, I anticipated more volume on a legitimate breakout than we have seen so far. The only heavy volume was on Friday after the breakout, when the averages were apparently encountering resistance. So far, it doesn't feel like a legitimate breakout that is likely to carry very far.

In the meantime, the Arms Index has moved up to somewhat overbought levels. As can be seen on the chart below, the moving averages didn't hit a dramatic extreme, and they have moved away somewhat from where they were at the end of last week. Nevertheless, they are overbought enough to provide an additional warning that all is not as rosy as might be thought by just looking at the Dow Industrials. I continue to hold longs, but very cautiously. "

Obviously, Dick is a bit nervous about the markets.