ARMS TAKE

Dick Arms, the noted market technician, with an indicator named after him, is a bit cautious this morning based on his comments on realmoney.com. His overbought indicators coincide with my VIX stretch and 2 day RSI sell signals. I am not sure what he sees that indicates the rally is falling but here is what he says:

"The Dow industrials' rise of almost 200 points, combined with the intraday high Wednesday, took the Dow almost to the level I had expected to be a logical stopping point for a rally, the highs of March. In two days, the market accomplished what I had thought would take a couple of weeks or more.

I am bothered by the fact that the five-day moving average of the Arms Index is now at a very overbought level of 0.78 and that the 10-day is at a moderately overbought 0.92. Two days ago I was short-term bullish, but longer-term bearish. The sudden rally, which appears to be failing and is up against resistance, is forcing me to switch back to a much more cautious stance, even on a short-term basis."