Signs of panic-like selling could be a short-term positive for the Dow industrials

Investors may be finally showing some signs of panic on Friday, which contrarians might see as a bullish sign, as the 375-point tumble in the Dow Jones Industrial Average has helped boost the NYSE's Arms Index above the oversold threshold level of 2.00. The Arms, or TRIN, which is a volume-weighted measurement of market breadth, climbed to 2.111 in afternoon trade. The Arms tends to rise above 1.0 during broad market declines, as the ratio of volume in declining stocks relative to advancing stocks tends to be higher than the ratio of the number of declining stocks relative to advancing stocks. Many believe an Arms reading above 2.0 implies panic-like selling, or capitulation by bulls, that suggests selling may have been exhausted. On Thursday, the Dow shed 358 points but the NYSE Arms closed at just 1.37. The last time the Arms closed above 2.00 was July 8, after a 261-point Dow drop, and the Dow rose 538 points over the following four sessions.

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