A Small Rally Could Happen

The sellers have shown up quite decisively, in spite of the current drop from the cycle highs still being moderate. I refer to the fact that the drop of the last week has seen volume flowing to the negative side, as evidenced by the second chart. It shows us that both the five-day and the 10-day moving averages of the Arms Index have rapidly become oversold. But the longer-term 21-day average has not followed suit, so the implication is that the selling has been a little overdone and is likely to give us a small rally, but that it is unlikely to go very far.

Consequently, those who went short based on what we were seeing a few days ago should hold positions, maintaining, of course, the usual protective stops in case a rally is stronger than anticipated. Keep in mind that we have seen very reliable cycles recently and that the next cycle low is due in late October....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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