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Arms Index Tracks Capitulation.(SERIES: INVESTOR PSYCHOLOGY)(A)(INVESTOR'S CORNER)

Investor's Business Daily

| June 04, 2002 | COPYRIGHT 2002 Investor's Business Daily, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

Byline: DAVID SAITO-CHUNG

Investor Psychology:

Seventeenth In A Series

The market's action in the days before a bottom can be crippling.

In a single session, down stocks outnumber up stocks. Volume soars. Yet such selling exhausts itself. After the panic-stricken finally get out, new buyers bid prices higher and the institutional herd follows. A new rally begins.

As this column noted last week, the best way to spot the market bottom is to listen to the market itself. Wait for 2%-plus follow-through rallies among the Nasdaq, S&P 500 and Dow. Don't be fully convinced until a few sectors yield stocks with powerful breakouts.

It doesn't hurt, though, to also look for signs of investor desperation. The Arms index can help.

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