Trader’s Narrative

The spring rally that started on March 9th 2009 took the Standard & Poor’s 500 Index 37% higher by May 8th (almost two months exactly). Since then we’ve been bobbing and weaving, first lower, then higher but really not going anywhere:

It could just be that we have no come into areas of resistance which last pushed back prices in early January. Or there could be more a more insidious reason for the recent weakness in the equity market.

In a recent Wall Street Journal article, Paul Desmond, the award winning head of Lowry Research, argues that what we are seeing is not the start of a real bull market:

“A new bull market is one when investors are prepared to commit larger and larger amounts of new money to equities… What we have seen here is a very consistent drop in total volume going back to early April. Investors are risking smaller and smaller amounts of capital and that is a bad sign.”

Mr. Desmond says his data, going back to the 1930s, don’t show any new bull market with such a weak volume trend, which leads him to believe that this rally won’t become a lasting bull market.

Among the many metrics used by Lowry Research are two proprietary ones called ‘buying power’ and ’selling pressure’. Accordingly a bull market is distinguished by a rising buying power measure and falling selling pressure. While stock prices have certainly risen, there isn’t a demonstrable strength in Lowry’s buying measure. In fact, demand has been fading.

For further details about Lowry Research and how they analyze the stock market, check out: Lowry Research On Current Market Conditions.