Warning Signs Are In

Two weeks ago, we looked at the crossover charts of the Arms Index, shown below. The idea is that the slower index produces a baseline about which the faster line oscillates. The first chart looks at the long term by comparing the 89-day moving average to the 144-day average. It is still telling us that we are in the decline that began in April, and it appears to have further to go. Less aggressive investors should remain very cautious.

The second chart is for the traders. It overlays the three-day and 13-day averages. Notice the extreme reached Friday and the move to a negative crossover now. It reflects the overwhelming bullishness and complacency that permeates markets at this time, and I take that as a warning. This chart suggests the markets are likely to drop in the next few sessions, presenting an opportunity for aggressive short sellers....281 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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