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Lowry Research Update: Rally Continues Strong at Trader’s Narrative

It is only six weeks since Lowry Research gave an intermediate trend buy signal. Since then the market has gained appx. 6%. Here is update on where the oldest technical analysis firm on Wall Street stands. You can listen to the Bloomberg podcast at the end of this post.

If you’re new to Lowry’s, many of the terms below may be confusing. For example, Pimm refers to “Lowry stocks” which is a misnomer. What he means is OCO (operating company only) breadth, which is Lowry’s response to the pollution on the NYSE. This measure strips out ADRs, CEFs, REITs, bonds, ETFs, etc. and only shows market breadth for operating companies. For more background like that, as well as an explanation of Lowry’s proprietary indicators, take a look at my post late last year outlining Lowry Research’s position on the then market conditions.

percentage stocks SPX 10 day moving average Sept 2009

Here are some notes from the recent Bloomberg interview with Tracy Knudsen of Lowry Research:

  • from Lowry’s market newsletter: “strong rallies but there are flaws”
  • potential growing selectivity within the rally
  • breadth momentum % above 10 day moving average declined last week as
  • this indicator was at 88% (time of interview) - extremely overbought
  • now it is lower at 82.6% (see chart above)
  • also there are overbought price momentum indicators
  • demand volume weak: NYSE up volume 52% (Sept 15th) of total up+down volume
  • this is another blemish on the aging rally
  • S&P 500 trading envelope: overlay 21 day moving average then +/-3% range
  • this provides and indication of overbought/oversold condition
  • right now the S&P 500 index is hugging its upper trading envelope
  • we’ve seen this happen before during the rally - this is the 3rd time since early June
  • each time as the S&P hugged this upper envelope, we also had deterioration in the momentum indicator (% above 10 day MA)
  • the confluence of waning breadth momentum and the overbought condition lead to corrections
  • the first correction was 7%, the second less
  • not a signal of an important market top but evidence mounting for a correction
  • LT indicators are telling us the correction will be short term & shallow correction
  • new highs in advance/decline line, and Lowry’s proprietary indicator: Buying Power index continues in an uptrend
  • as well Lowry’s Avg. Power Rating index which measures demand across stock market has tripled since March low
  • strong indications of demand so correction will probably be shallower than 5-10%
  • price momentum is also very overbought (short term condition pointing to correction)
  • traders have been expecting a correction since the market can’t move up in a straight line
  • but the market has been very resilient
  • even so, we haven’t seen panic buying which precedes important corrective points
  • if we see complacency and sharp move higher = panic buying and look out below
  • have not seen true panic buying from the March lows
  • OCO advance/decline line is confirming new highs in major market averages
  • no divergence - that would be seen at an important market top
  • any selling is met with a renewed wave of buying which overwhelms it
  • watch to see if “buy the dip mentality” fades - watch for waning intra-day resilience
  • Nasdaq advance/decline line was lagging but is now at a new high as index leads
  • this rally has not run its course
  • during a pullback, if market internals deteriorate proportionally more than the market, we’d reevaluate our stance

SPX chart lowry envelopes Sept 2009

Tracy Knudsen of Lowry Research:
Pimm’s interview with Tracy is at the beginning of the podcast so just press play and listen:

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5 Responses to “Lowry Research Update: Rally Continues Strong”  

  1. 1 Jimmy

    Lowery just issued a buy signal six weeks ago? what was it prior to that…sell or neutral? sounds kinda late considering the huge historical rally we had thus far but i guess it’s better late than never.

  2. 2 Pej

    Babak, Thank you for sharing these, this post is great.

    Jimmy, from what I’ve read on this blog, Lowry has issued very timely and accurate calls.

  3. 3 Babak

    Jimmy, if you read the link above for their intermediate buy signal, it explains why they were late to the party. They use proprietary indicators instead of discretionary methods so yes, they were ‘late’. More importantly, I’m interested in their thinking and analysis.

    Pej, you’re welcome. Glad you liked it. Make sure you share it with friends. Cheers

  4. 4 Avi

    great post Babak…maybe lowry wasnt the first to this bull market, but they always give clear cut reasons.. unlike joe terranova et al who have been right ,…. its the process not the end result that matters over the long term

  5. 5 Dave

    Being “late” is better than having been short like many permabears. And more importantly what really matters is how much long profits there are AFTER their call.

    Give me the sweet middle. You can have the bottom tick although i said on

    March 6th, 2009 at 1:59 pm
    “Still think we could make a low betw Mon & Weds”

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