The overall sentiment among investors has shifted from complacency
to worry in the last few days, an emotion that was conspicuously lacking in
recent weeks as the market drifted sideways-to-lower from mid-July through late
August. For instance, the CNNMoney Fear
& Greed Index has fallen to a multi-week low of just 22% (out of a possible
100%), a reading which indicates a high level of fear among market
participants.
Also worth mentioning is the Arms index (also known as TRIN, or
Short-Term Trading Index), which is a measure of market breadth. The Arms index (named after its developer
Richard Arms) tends to spike higher at or near short-term market bottoms and
lower when the market is “overbought.”
On Tuesday the Arms index had one of its highest readings of the year at
2.65 (below).
I don’t think we’ve arrived at an interim bottom yet, but given
the increasing levels of fear on Wall Street we should be getting close to
one. The S&P 500 Index (SPX) found
temporary support on Tuesday and Wednesday at its 120-day moving average (see
chart below). We’ve discussed the
technical importance of this particular moving average in recent reports and
you’ll notice that the previous correction low was stopped at the 120-day MA
intersection back in late June. As
mentioned earlier in tonight’s report, it was on the very day the SPX touched
the 120-day MA on June 24 that the up/down volume ratio was very similar to
what it was on Tuesday of this week. It’s
still too early to tell with any certainty whether the SPX will establish
interim support above this important trend line, however. It should be good for at least a temporary
support for the next couple of days, however, or until the short-term cycle
bottoms as we’ll discuss below.
[Excerpted from the Aug. 28 issue of Momentum
Strategies Report]
