This Pullback Isn't Scaring Anybody

Wednesday's market action exemplifies the underlying complacency that I have felt was a dangerous sign. Even as the Dow dropped more than 100 points, the Arms Index was still less than 1.00. So the few stocks that were going higher were still getting more than their fair share of the volume. Similarly, the Volatility Index (VIX), while rising a little, was not reflecting any big shift toward a more fearful public sentiment. While such complacency is supporting the market move, it is also warning us that the move has gone too far and that the pullback that began Wednesday isn't scaring anybody.

On the second chart below, we see the longer-term implication of that complacency. The eight-day Arms Index is the most overbought it has been since the end of last year, just as an important high was being made. The 21-day is now also becoming overbought, indicating a drop; when it materializes, it is likely to extend to the intermediate term rather than be just a short-term pullback. Wednesday's drop may be the start of the anticipated drop, but it is still early to declare a believable reversal....234 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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