ARMS Index

Last week was very nice to us investors and I hope that many more nice weeks are ahead. I have been having severe back pain for the last few days and am spending a lot of time sitting down with a heating pad. If anyone has a cure for back pain please let me know. The topic this week is the ARMS index and what it means for us. The weekly recap from Vanguard is the first section. The last section is something that I found titled, The English Language.


Vanguard

The first major employment report for the year suggested that businesses may be willing to hire at greater levels than expected. While the unemployment rate remains historically high and risks abound, there are more signs that the economic recovery is strengthening. Manufacturing activity continues to grow, construction spending is improving, and consumers' expectations for the near term are somewhat positive. For the week ended February 3, the S&P 500 Index rose 2.2% to 1,345 (for a year-to-date total return—including price change plus dividend—of about +7.1%). The yield on the 10-year U.S. Treasury note rose 4 basis points to 1.97% (for a year-to-date increase of 8 basis points).


ARMS Index

The Arms Index, also known as TRIN, an acronym for TRading INdex, was developed in 1967 by Richard Arms. It is a volume-based indicator, which determines market strength and breadth by analyzing the relationship between advancing and declining issues and their respective volume; it is used to measure intra-day market supply and demand, and it can be applied over short or longer time periods.

An index value of 1.0 indicates that the ratio of up volume to down volume is equal to the ratio of advancing issues to the declining issues. The market is said to be in a neutral state when the index equals 1.0, since the up volume is evenly distributed over the advancing issues and the down volume is evenly distributed over the declining issues. Many analysts believe the Arms Index provides a bullish signal when it is below 1.0 and a bearish signal when it is above 1.0; however, the index is also said to be useful as an overbought and oversold indicator.

So why is the ARMS index important? When the ARMS index is above 1 it means that value investing will give better performance to growth investing. Conversely when the index is below 1 it means that growth investing will give better performance than value investing. This is a good reason to have a mutual fund that is a value fund and also to have a mutual fund that is a growth fund.

Last year the ARMS index spent most of the time being slightly above 1. This year the index is spending most of the time below 1. This is a very positive indicator for the US stocks for the near term and that growth mutual funds will give the best performance.


The English Language

Let's face it - English is a crazy language. There is no egg in eggplant, nor ham in hamburger; neither apple nor pine in pineapple. English muffins were not invented in England or French fries in France. Sweetmeats are can-dies while sweetbreads, which aren't sweet, are meat. If we explore its paradoxes, we find that quicksand works slowly, boxing rings are square and a guinea pig is nei-ther from Guinea nor is it a pig.

In addition, why is it that writers write but fingers don't fing, grocers don't groce and hammers don't ham? If the plural of tooth is teeth, why isn't the plural of booth, beeth? One goose, 2 geese. So one moose, 2 meese? One index, 2 indices? Doesn't it seem crazy that you can make amends but not one amend? If you have a bunch of odds and ends and get rid of all but one of them, what do you call it?

How can a slim chance and a fat chance be the same, while a wise man and a wise guy are opposites? You have to marvel at the unique lunacy of a language in which your house can burn up as it burns down, in which you fill in a form by filling it out and in which, an alarm goes off by going on.

English was invented by people, not computers, and it reflects the creativity of the human race, which, of course, is not a race at all. That is why, when the stars are out, they are visible, but when the lights are out, they are invisible.