Editor's Note: The following article was written by Raymond James Chief Investment Strategist Jeff Saut. It has been reproduced with permission for the benefit of the Minyanville community.

“The other reliable indication of the start of an upward swing is afforded when, after a period of declining prices or, less frequently, dullness, the market advances or refuses to go down following the receipt of bad news. It is not enough that there should be temporary strength in these circumstances; the best of the market position should be applied for an entire day, and stocks should be bought only when, after thorough dissemination of unfavorable news, the market finally advances above the point where it was before the news was received.”
Don Guyon, One-Way Pockets

One-Way Pockets was written by an unknown author using the nom de plume of Don Guyon. The book was first published in 1917; I first encountered it in the 1970s, after hearing it was legendary strategist Bob Farrell’s favorite book on investing.

The aforementioned quote, which can be found on page 36 of said book, seems as insightful today as it was 91 years ago: Human nature doesn’t change.

As “the market advances or refuses to go down following the receipt of bad news,” 2 stocks -- Citigroup (C) and General Motors (GM) -- both of which have been in a death spiral for months, coughed up some pretty horrific news recently - but their share prices actually went up. Not only did they rally, Citi has gained 172% since a week ago Friday; General Motors tacked on 136%.

Moreover, since the October 10, 2008 “capitulation alert,” the economic news has been dour, yet stocks haven't meaningfully traveled lower. As Barron’s noted a week ago:

“For a bullish spin, though a weak one, the market has not made a significantly lower low since October 10th. The word ‘significantly’ is important because some major market indexes, including the Nasdaq, have indeed been setting new lows. But the trend, if we can call it that, has been more sideways than decidedly down.

"A better, but still weak, bullish angle comes from trading volume, or the amount of money committed to either the bull or bear side each day. All of the higher volume days that have occurred since October 10th have come on days when prices rose.

Theoretically, when prices are going up and volume increases, it means that investors are chasing the market higher. That's a sure sign of demand. Subsequent declines occurred with lower volume, so we can conclude that the desire to sell was not quite as strong as it was before October 10th.”

Recall that on October 10th a shocking 2,901 of the 3,130 stocks traded on the NYSE made new yearly “lows.” Accordingly, that 92.7% “new low” ratio registered the first “capitulation alert” in decades.