Early Warning Signals

After the rise to new highs on Tuesday, it looked as though some follow-through was to be expected. In fact that did happen in early trading, but the subsequent action was both disappointing and interesting. I have included a different chart as our second chart of the market today. It is a scatter chart showing the distribution of the Dow's changes as related to the Arms Index values. Outliers from the big blob in the center reflect anomalies and are often signs of a change of direction. 

Yesterday, the Arms Index told us the up stocks were getting twice their fair share of the volume, yet the market did not rocket higher as one would expect, thereby creating such an outlier. It looks as though the market, after the move, is encountering difficult resistance. The lack of range for the day, as seen on the first chart, imparts a similar message. Additionally, the low AI number yesterday has pushed the short-term moving averages to more overbought levels. Caution!...221 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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