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Lowry Research On Current Market Conditions at Trader’s Narrative





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As promised in yesterday’s post about the NYSE bullish percent index, here are some notes from the Lowry Research meeting. You can view the accompanying charts by downloading the PDF file from the free trading resource section. The file is in the Reports & Articles folder:

lowry research nov 19 report free trading resource section

In case you’re not familiar with them, Lowry is one of the most respected technical research firms. Their prestige flows not only from their longevity (they are the oldest continuously published letter on the US markets) but also due to the quality of their analysis. Their principal, Paul Desmond, won the Charles H. Dow award in 2002 for his research into 90-90 days and their role in market bottoms. They have mostly institutional clients with some retail clients paying $1000 a year for regular access to what you’re about to glimpse.

This also has some poignancy today since we have now fallen appx. 55% from the 2007 top as Paul Desmond opined: How brutal can this bear market get? We are now below the S&P 500 2002 bear market level. Is that enough? has the bear extracted its pound of flesh? Read on to find out what Desmond’s firm thinks.

The presentation was given by one of their junior analysts, Tracy Knudsen (CMT). First she reviewed what happened at the market top in 2007 and then moved forward to today and Lowry Research’s view on where we are headed from here. Then a brief overview of sectors and the changing role of 90-90 days:

  • Lowry is now known for Paul Desmond’s research into 90-90 days but they primarily use proprietary indexes: buying power and selling pressure
  • use these two metrics to gauge health of the market and the underlying momentum to measure who has upper hand
  • important to look at both components of 90-90 days: total price points gain/lost and total volume of advancers/decliners
  • buying power & selling pressure calculated from public information released by NYSE for that exchange
  • Lowry is working on beta versions of same for NASDAQ and international markets (still private)
  • mid-July 2007 first warning sign that bull market losing strength
  • new high on index not confirmed by adv/dec breadth of NYSE (OCO) operating companies only, S&P 500 or NASDAQ
  • this was a sign that rally was becoming selective rather than continuing as broad-based

  • Lowry’s % of OCO above 30 day moving average in early June 2007 80%, in mid-July 2007, 64%
  • July 23rd 2007 brought about dramatic change in tone of market
  • within 3 trading sessions we saw two 90-90 down days: sign of intense selling, not seen in a while
  • this moved selling pressure metric above buying power [blue circle CHART 5]
  • beginning of August 2007 brought 3rd 90-90 down day
  • when this happens w/o an intervening 90-90 up day, it is a very negative sign for the market
  • at this point Lowry started to advise clients to sell into rallies and to pare positions
  • tops are a gradual process, in contrast to bottoms, so clients should have time to exit market orderly
  • in August selling pressure accelerated: Aug 16th dramatic hammer candlestick bottom, Aug 17th 90-90 up day
  • monitored rally started in mid-August to gauge health of bull market and quality of rally
  • selling pressure fell but buying power rose little: rally powered by sellers leaving, rather than by new buying [CHART 7]
  • as recovery extended into Oct 2007, buying power continued slow slide lower
  • market breadth also played important role in gauging health of ensuing rally
  • % of stocks at least 25% from last rally high started to increase, going from 9.8% to 20.6%
  • Lowry also looks at unweighted indices to remove capitalization skew: Rydex S&P Equal Weight ETF (RSP)
  • mid-Sept Fed cut interest rate but internal market measures were weak
  • adv/dec was below June peak - only large multinationals were carrying index higher
  • by end of Sept 2007, buying power fell to lowest level in 6 months [CHART 8]
  • negative divergence between market indices and Lowry’s buying power measure
  • Lowry’s conclusion: prices not low enough to attract significant investor money, will need to go lower in order to do so
  • early Oct 2007, as Dow made new high only 5 of 30 components rose to new all time high & only 10 to new 52 week highs
  • Lowry’s OCO new high/new low indicator continued to show internal weakness of market
  • Lowry Research told clients: market would retest recent lows
  • in aftermath market has had 5 counter trend rallies ranging from 6.4% to 17.7% lasting 8 days to 2 months
  • Lowry’s watched each one by looking at similar measures to gauge health of rally and probability of new bull market
  • lasting bottoms need two conditions: exhausted sellers and strong demand from buyers
  • good example from recent market history: 2002 bear market bottom
  • Lowry told clients to buy on March 17th, 2003 - three days after market made its year lows
  • reasoning was the two conditions not met in October 2002 low and until then
  • in October 2002 proprietary selling pressure measure hit previous high hit in mid-July 2002
  • in March 2003 selling pressure was significantly lower as it had continued to fall from double top in July/Oct 2002 [CHART 18]
  • difference between characteristics of short term rally and new bull market are these
  • selling pressure failed to contract in March 2008, May 2008 and mid July 2008
  • in each instance, buying was met with heavy selling, causing Lowry to conclude market would have to move lower to attract sustained demand from buyers
  • recent market environment has been extremely volatile, due to credit and real estate bubble as well as no uptick rule
  • market has traded within a small range - is accumulation taking place?
  • during highly volatile days Oct 15, 16, 21, 22 and Nov 5, 6, selling pressure continued to rise
  • buyers not using trading range or volatility to step up and accumulate shares while sellers remain active
  • Nov 19th 2008 took buying power -10 to 127 and selling pressure +12 to 906, an all time high
  • very rare to see market bottom when selling pressure is at all time high
  • only happened once - 1974’s V-bottom where selling pressure and market both rose in tandem
  • in 1974 both market and selling pressure were trending and suddenly shifted
  • Lowry Research believes we’ll have to fall below Oct/Nov lows to attract strong demand [CHART 22]
  • do not use targets but instead monitor market daily and use measures mentioned to gauge health
  • advance decline lines would need to rise sharply
  • sectors with least selling pressure: utilities which Lowry’s believes is seeing accumulation
  • selective strength in telecom also
  • financial sector is seeing heavy selling pressure as well as information/technology, consumer cyclicals
  • consumer non-cyclicals are moderate to ok
  • energy/oil sector is seeing a withdrawal of selling pressure but no sustained rise in buying power
  • gold or basic materials sector is similar - since Oct low, a reduction in supply but no demand has come in
  • health sector: minor accumulation since October low
  • Wed Nov 19th 2008 was a 90-90 day
  • so far we’ve seen 6 of them while in this range
  • Nov 12th was a 90-90 down day followed by Nov 13th a 90-90 up day
  • normally a bullish sign but have to be cautious in current market environment
  • elimination of the uptick rule allowed more volatility and as a result seeing more 90-90 days
  • 90-90 days are still important but because they are not as rare as before, need to take with grain of salt
  • their appearance should not be interpreted outside of proper context or lose some forecast ability
  • key factor of 90-90 days is follow through, must be followed by rise which we have yet to see
  • market not required to have a 90-90 down/up day to bottom - can do so perfectly without
  • two ways: either scared out of this market or bored out of the market
  • intensity of this bear market is ferocious, as measures by number of 90-90 days
  • Lowry believes it could last quite a while and be one of the more pronounced bear markets we’ve seen
  • reason this because of the lack of demand and intensity of selling as seen through their proprietary indicators

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7 Responses to “Lowry Research On Current Market Conditions”  

  1. 1 Clemens Sartori

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    Many Thanks for that good research !!!

    I had a very very good time the last 3 month. But it seems it might had been quite a good time the last 12 (!!) month if i had studied your research.

    Can i do that for the future?
    Please give me a mail.

    best regards
    Clemens Sartori

  2. 2 Babak

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    you’re welcome Clemens, Lowry is a great source, I’ll continue to share what I can from their guidance

  3. 3 Elvira

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    I read elsewhere that Lowry has made a new call. Any chance you could get us the updated numbers.

    Thanks very much

  4. 4 Babak

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    elsewhere?

  5. 5 Anna

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    Hi, thanks for posting! excellent research. Do you have any updates from Lawry? thanks.

  6. 6 Babak

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    Hi Anna, nothing yet. As soon as I hear something worth sharing, I’ll write about it.
    cheers

  7. 7 rob

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    Any new info on Lowry’s?A great resource!

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