Be Skeptical of a Rally

It was only a couple of weeks ago that I was warning that the markets could easily go sharply lower and suggested, "Beware of following the crowd to the upside." The Arms Index was very overbought for both short and long term, and the volatility index (VIX) was extremely low.

Now that the Dow is about a thousand points lower, we are getting somewhat of a mirror image. A sudden surge in fear has put the shorter-term and even the intermediate-term Arms Index moving averages into oversold territory, and the VIX is back where it was last October. We are, I believe, very close to a rally, but a rally suitable for only the most aggressive traders, since it would now be a countertrend rally. ...266 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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