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Lowry Research: Turbulence Ahead, Uptrend Intact at Trader’s Narrative

Let’s check in with the latest Lowry Research proprietary indicators. As persevering readers will recall, Lowry arrived late to the (bullish) party with their intermediate buy signal in August. Since then, they’ve continued to monitor their indicators and diagnose the uptrend as healthy: Rally Continues Strong. No indicator, whether proprietary or otherwise is perfect and no one has a crystal ball.

Having said that, personally, I respect the oldest technical analysis firm on Wall Street not just for their heritage but also because they refuse to be swayed by emotion and always root their approach in a methodical study of the market.

Here are some notes from the latest interview with Tracy Knudsen of Lowry Research (you can listen to the whole podcast at the bottom):

  • S&P 500 bouncing off its 50 day moving average
  • near term, we could get a move down to that MA
  • around 1045-1050 which is a converging support area
  • the trendline from March and July lows also meets in that area
  • this area will act like magnet to draw market lower
  • volume is sending a clear message: weakness on upside and more strength on downside
  • S&P 500 tried several times to clear the 1100 level
  • it has approached that level on contracting volume
  • but volume expands on downside days
  • this telling us demand weakening and selling more intense
  • so the market is gearing up for a correction
  • last short term pullback occurred in late Sept to early October
  • that began with a downside reversal day
  • this is when the market made new high then wasn’t able to sustain it and made a new low

S&P 500 index Lowry Research commentary Oct 2009

  • we did that again last week on Wednesday
  • on chart looks like an upside down hammer candlestick
  • last time, downside reversal was for an 8 day decline and fell 4.5%
  • if this happens again, will take S&P to 1020-1030 level
  • which is close to the early October low as well as previous mentioned support levels
  • at that level, if short term measures are oversold, that would be a good time to go long
  • breadth momentum important: how many stocks participating in a move
  • also if % above 10 MA - when/if this goes down to 10% or less
  • finally the 14 day stochastic - another momentum metric which measures strength behind move
  • there is no strong evidence that the equity market is forming a top
  • we are still in the midst of primary uptrend
  • these highs est. in October do not represent end of primary uptrend
  • recently the Selling Pressure Index was at a new low
  • typically when market is forming major top, Selling Pressure Index will move higher
  • but when it is so low this is not probable
  • Primary Buying Zone: first of 3 zones in uptrend
  • represents the dynamic phase of rally
  • March low - shot higher off spring low
  • most stocks participate in rally and where most gains are, reap most profits
  • this is an indiscriminate context where almost all stocks rise
  • then we transition to Holding & Upgrading Zone
  • here selling pressure increase even as buying power is rising
  • investors then have to be more careful and picky
  • according to market sentiment traders are complacent
  • put call ratios reacted at in the middle of last week’s decline but still complacent

This isn’t surprising if you’ve been reading the blog these past few weeks. The market has given us technical reasons why it is about to stumble. For example, its distance from the 200 moving average. As well, there are indications from the sentiment data that there is enough complacency to awaken one’s contrarian instinct.

Nevertheless, the primary trend continues to be bullish. Here is Paul Desmond, of Lowry Research, talking about the ‘wall of worry’:

The media is filled these days with ‘expert’ opinions on a plethora of potential problems such as inflation, deflation, excessive debt, over-valuations, and a weak economy, to name just a few, that will ‘undoubtedly’ bring the stock market to its knees any day now. These cumulative opinions comprise the current version of the Wall of Worry that the stock market has perpetually climbed during the early stages of every extended market advance since the stock market was formed under the Buttonwood Tree. Each new major market advance has had its own list of worries which served to keep many investors on the sidelines fretting about problems that rarely materialized.

Tracy Knudsen of Lowry Research:
Pimm’s interview with Tracy is after the half-way point, so press play to buffer then skip forward and listen:

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6 Responses to “Lowry Research: Turbulence Ahead, Uptrend Intact”  

  1. 1 Dave


    Thanks, any good TA already knew most of these points (except for info re their proprietary Selling Pressure Index), but it’s still good to see that Lowry’s acknowledges these blemishes.

    But special thanks to you for including both highlights in print & the audio. Special Thanks.

  2. 2 PEJ

    Special thanks, indeed.
    On the other hand, how far can this rally go? How far from the fundamentals? we are far further from the fundamentals than where we are at the top of the .com bubble or even the housing bubble if you think about PEs and probably so with Q ratio (haven’t checked that one for quite a bit though)

  3. 3 WOG

    dude, not only was your prop trading list instrumental in my early days (2 years ago), but you have inspired me to write a blog of my own.

    On the other hand…I am tired of waiting for and trying to predict when the market will correct. Every time a sexy Head and Shoulder or just a shoulder starts to develop, we bounce off of moving avg.

    Unf*believable! Do you use Bollinger Bands? John Bollinger’s Bands are soo dope my man, extremely useful tool.

    Anyways, keep up the good work!

  4. 4 Babak

    PEJ, according to PE ratios, we are way off ‘bubble’ territory. Not (yet) at value investor heaven levels but I don’t think it would be accurate to say that this shames the previous bubbles. Check out the long term chart of PEs from Shiller’s data.

  5. 5 Babak

    WOG, glad to hear it was helpful to you. I’ve never gotten the hang of Bollinger bands.

  6. 6 Pej

    Babak, don’t let yourself get fooled by “operating earnings” and the resulting “P oE R”. Real earnings are way down, and real PER are at historical levels.
    Here’s a chart i posted on my blog, from the official S&P reports

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