BIG ARMS

Dick Arms of realmoney.com and the developer of the ARMS INDEX/TRIN with some interesting thoughts this morning and I am in agreement:

"The narrow trading range since the post-Fed rally more than a week ago is still with us. Thursday makes the seventh session in which the various averages have traded within very tight limits.

The formation has had a slight upward bias, as can be seen in the chart of the Dow Industrials, but it is being stopped by the all-time highs set in late July. If we look at the S&P 500, we see that the July high is also the high set in the year 2000. The markets are butting up against very difficult resistance.

The VIX, the volatility index, which measures the level of complacency in the marketplace, has moved back to levels that reflect the most complacency we've seen since July, when the market was at its highs. Also, the Arms Index moving averages continue to be overbought, as they have been all week.

These two factors point to a pullback rather than a further rise out of this narrow congestion. It looks as though it would be very difficult to have a breakout to new highs under these conditions."

I agree that an initial move to the old highs will get sold as many an investor/trader would probably want to book the profits. However, I think they will want to get back in when they see the earnings/economy aren't as bad as expected.