You had mentioned the ARMS index a few weeks ago, as having a good track record for predicting market bottoms, then I haven't seen your conclusion of what actually happened. Could you comment? (October 16, 2001)
The Arms Index has a couple of ways to read the market, the primary being a close over 1.50 indicating a significant bottom in 4 to 20 days after the signal is flashed. The indicator is simply another means of viewing market fear and anxiety and finding a 'capitulation' bottom. What happened this time around was interrupted by the events on September 11. Even if the Arms Index flashed the signal, it could not predict what happened after that signal was given. What did happen was other sentiment indicators that we follow all flashed reversal levels, some at levels never recorded before (e.g., put/call ratio). Those indicators all lined up at reversal levels, then the market rallied and gave multiple follow throughs with the A/D ratio at 2+ to 1, 3+ to 1. In addition, stocks started breaking out, and they are continuing to form up patterns so others follow in the breakout footsteps. The Arms Index may have been telling us this was coming anyway without the attack, but we are not sure you can honestly say it predicted this bottom.
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