According to Richard Dickson of Lowry Research, while the market indices chop around listlessly, a deeper look at the market internals suggests that there is ongoing accumulation occurring. Lowry’s proprietary models of demand and supply have been pointing to a cyclical bull market for some time now and they are continuing to be supportive of that thesis.
As I briefly noted yesterday in my comment on back to back selling climax extremes, Lowry’s “net” or “spread” between demand and supply is higher now than it was since March 2009.
Usually Lowry Research looks at the Selling Pressure and Buying Power indexes separately but they have been experimenting with calculating a simpler ‘net’ number between the two. Since there is concern that we are in a new bear market (from the April 2010 highs) Lowry Research went back to 1940 and checked to see if there was a similar instance in previous bear markets and found none.
That is to say, with every single bear market since 1940, the ‘net’ of demand and supply, as measured by Lowry’s indicators, has been going down along with the market. This time, however, it is going up instead. This suggests that what we are seeing isn’t a new or renewed bear market but a correction within a cyclical bull market.
On August 10th, Lowry Research correctly warned that the market was vulnerable in the short term (red arrow on above chart). But they continue to believe that in the intermediate and long-term range, the underpinnings of a bull market are in place. Furthermore, while volume is light, they point out that we are seeing pullbacks on lighter volume than advances. So all in all, there is an almost imperceptible accumulation taking place.
Like almost every single technically oriented trader, Lowry is watching the 1130 level for a breakout but they have no forecast on when that will occur. They suggest however that while the market is trading sideways, there is more accumulation taking place than distribution.
Unlike the data we looked at from Investors Intelligence recently, Lowry doesn’t see a selling climax. Instead they are measuring a gradual and continuous decrease in selling pressure as the market trades sideways.
Interview with Richard Dickson of Lowry Research:
Press play and pause to buffer - then listen to the complete interview:
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