V.9:5 (177-179): Cross Your Arms by Richard W. Arms Jr.

Cross Your Arms by Richard W. Arms Jr.

The dinner had been marvelous, the wine had been perfect, and now my wife and I were arriving at the theater. I knew we were right on time, and I had the tickets in my inside coat pocket. As we walked up to the entrance we realized that the theater was dark, and when we tried the door it was locked. I looked at the tickets, of course — and found that we were a night too early. The show would not open until the next evening. We had done everything right except the timing. It was the right show at the right theater, but we had wasted our energy because of poor timing.

I try not to do this in the stock market! (The market is far less forgiving than my wife.) It is not enough to have the right stock, it also must be the right time. Nothing is more frustrating than to recognize a great basing formation, spot a wonderful breakout on increasing volume, wait patiently for the light volume pullback, aggressively buy the stock, and then see it do nothing, or even decline farther because the market is coming apart. Some stocks can be strong enough to buck the trend, of course, but it makes little sense to fight a market if it is not necessary.

Each weekday morning, about two hours before the market opens, I can be found in my office, pondering my charts, writing my opinions and faxing my ideas to a group of money managers. Before I allow myself to look at individual stocks I require myself to formulate a market opinion, not just for that day, but for the next few weeks and the next few months. Then I decide whether that opinion allows me to be a buyer or a seller. I have to be sure that I am not arriving at the stock market "theater" on the "wrong evening." Let me show you a tool that is for me one of the mainstays of that decision-making process. It allows me to get a quite reliable picture of the market and to predict how the market will perform over the next few weeks. It is the Arms Index 21/55 crossover.