We've got a pretty significant chart today. From time to time, we revisit the Arms Index (also known as TRIN) to get a feel for whether breadth and depth are telling us the market can't take much more of whatever it's doing.

Of course, we don't look directly at the Arms Index data . We look at three key moving averages: the 10-day line (short-term), the 21-day line (intermediate-term), and the 55-day average (long-term). On our chart below, those are respectively red, blue, and green.

The basic idea is simple. When any of these averages get "too high" and start to slope lower, the market is moving into a bullish recovery mode. As always, you have to give an appropriate amount of lead and lag time to reflect the length of your time frame.

In a nutshell, the long-term trend is supposed to be bullish -- at least according to the pullback in the 55-day average of the NYSE's TRIN. In the intermediate-term, the scenario is certainly ripe for bullishness, with the 21-day average pressing up into the 1.2 range. Ideally, we'd see the moving average line start to trend lower before deciding the selling was finished and the buying had begun.

The trump card is the short-term moving average line: the 10-day line. It's frustratingly, though not surprisingly, neither bullish nor bearish. That's mostly a function of being batted around along with the rest of the market.

S&P 500, with 10-, 21-, and 55-day moving averages of NYSE TRIN


So, we're bullish -- at least long enough to shed the oversold situation. The problem has been finding a stable entry point. For the last month, it's been impossible to tell if a dip or surge was a fluke, a fakeout, or the real thing. You could justify jumping into a long trade based on the 21- and 55-day TRIN averages, but the daily volatility could put you behind the eight-ball real quick.

As far as the risk/reward ratio goes, the potential reward is solid, but the risk is pretty great right now. All rooted in timing an entry.

Price Headley is the founder and chief analyst of BigTrends.com.