Stock market bloodbath wasn’t the final flush, indicator suggests
By Tomi Kilgore
Marketwatch.com
Published: Jan 15, 2016 4:44 p.m. ET
NYSE’s Arms Index fell short of levels associated with panic-like selling that often precedes a stock market recovery
The stock market’s bloodbath Friday was not the final flush needed to clear the way for a recovery, according to a widely-watched indicator of selling intensity.
Many technicians, as well as old-school fundamental investors like Warren Buffett, say that the time to start buying in a falling market is after signs of panic, or capitulation by the bulls.
But after the Dow Jones Industrial Average plunged 391 points, or 2.4% on Friday--the biggest one-day percentage decline in 3 1/2 months--the New York Stock Exchange’s Arms Index suggested bulls were anxious, but not quite scared enough to throw in the towel.
The Arms Index is a volume-weighted measure of market breadth, which is calculated by dividing the ratio of the number of advancing stocks to declining stocks by the ratio of advancing volume to declining volume. When the market is declining, the Arms Index usually rises, as the volume in declining stocks tends to increase faster than the number of stocks that are declining.
In other words, sellers tend to hit the sell button a little harder when the market is falling, then when it isn’t.
An Arms reading of 1.0 implies buying and selling is in complete balance. Technicians see a rise to the 2.0-to-3.0 range as the threshold to imply panic, or capitulation.
On Friday, the NYSE’s Arms rose to just 1.791.
In comparison, last year’s high for the NYSE Arms was 4.95 on Sept. 1, when the Dow plunged 470 points. The Dow rose 293 points the next day, and ran up 1,830 points over the next three months.
Meanwhile, when the Dow tumbled 392 points last Thursday, and the NYSE Arms rose to just 1.28, the Dow slumped another 168 points the next day.
http://www.marketwatch.com/story/stock-market-bloodbath-wasnt-quite-the-final-flush-indicator-suggests-2016-01-15?link=MW_popular
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
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