The stock market is suffering another broad, and relatively large selloff, but the market breadth data aren't showing any signs of panic like behavior. If anything, market internals suggest there may be some buying on the dip. The Arms Index is a volume weighted breadth measure that tracks the ratio of advancing stock to declining stocks over the ratio of advancing volume over declining volume. The Arms usually rises above 1.000 when the market declines, with the denominator ratio shrinks more than the numerator ratio as sellers become more aggressive. But on Tuesday, as the Dow Jones Industrial Average tumbled 580 points, or 2.1%, and the Nasdaq Composite lost 1.7%, while the NYSE Arms fell to 0.790 and the Nasdaq Arms declined to 0.756. The number of declining stocks outnumbered advancers 6.96 to 1 on the Big Board and 5.17 to 1 on the Nasdaq, while volume of declining stocks outnumber advancing volume 5.50 to 1 on the NYSE and 3.91 to 1 on the Nasdaq. On Monday, the Dow plunged 1,032 points, or 3.6%, and the Nasdaq slumped 3.7%, while the NYSE Arms rose to 1.50--many technicians say a rise to 2.000 suggests panic-like behavior--while the Nasdaq Arms fell to 0.84. Many use the Arms as a contrarian indicator, on the idea that panic-like activity suggests a reversal is likely.
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