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Lowry Research’s Richard Dickson: Short Term Correction at Trader’s Narrative





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From the last update from Lowry Research, we learned that they were continuing to believe in the longevity of this young cyclical bull market. Now that it has celebrated its first birthday, let’s see what Lowry is saying now.

The information is from a recent interview with Richard Dickson, Senior Vice President at Lowry Research by Pimm Fox of Bloomberg. You can listen to the whole interview (scroll down) or read my notes from it:

  • the previous high of 1150 on the S&P 500 represents a critical resistance level
  • supply at that level sent prices lower, so returning to that level the question is what kind of supply is left there
  • breaking through it turns the page on the rally and suggests that the supply there has been absorbed and we are headed higher
  • some short term things are of concern… sentiment is rather too bullish
  • overbought readings have been beaten to death but they are still with us
  • we have reasons to ask what kind of follow through will we get
  • on a short term basis, the market is a bit extended, but will it pull back here or after breaking higher?
  • an outstanding aspects of this rally recently is that Buying Power has been rallying to new highs and Selling Pressure falling to new lows
  • this is a clear pattern of expanding demand and contracting supply
  • hard to get a major reversal when you have this pattern
  • in addition, in the recent few days we’ve seen a sharp increase in Buying Power (+21 points) and a large fall in Selling Pressure (-19 points)
  • this combination is the largest since this cyclical bull market began one year ago
  • keep in mind this applies to overall primary trend, it is not a short term guide
  • doesn’t preclude having a correction but it means a pullback is a minor interruption of the primary trend up
  • small-caps move in a cycle relative to large-caps
  • small caps are once again leading telling us that the risk appetite of investors has come back
  • when a portfolio manager buys IBM he won’t get fired if he loses money, but if he buys a small cap stock no one has heard of…
  • the move in small caps is also an indication of the wide breadth in this rally
  • this almost extreme move into risk is visible when we look at lower quality stocks like Citigroup, Fannie Mae and Freddie Mac, etc.
  • so we could be looking at a short term top based on these indicators of “froth”
  • there is a significant amount of volume going into these speculative issues
  • the last time we saw this was last August
  • if we do get that short term correction, it could end this large volume flowing into basically the “cats and dogs” of the markets
  • but these are short term concerns, longer term, the primary uptrend is intact
  • the advance decline lines are intact and leading the market actually
  • percentage above 10 day moving average had been showing a small divergence
  • but this again will be very short term in nature

Keep in mind that this interview is from last week, before the market peeked above the 1150.45 high on the S&P 500 index. Both the NASDAQ and NYSE new high/new low ratios confirm the strength and health of the cyclical bull market:

NYSE high low ratio Mar 2010
NASDAQ new high low ratio Mar 2010

While Lowry Research primarily relies on their proprietary Buying Power and Selling Pressure indicators, they, as well as Ned Davis Research, another institutional favorite, monitor this breadth indicator as a guide for the health of the market.

As a comparison, I’ve highlighted the 2003-2004 rally since we’ve been following that script almost to the letter. This cyclical bull market is actually slightly weaker (especially by NASDAQ standards) since the New High Low ratio has not been able to maintain itself extremely high for an extended period of time. Whenever we have this much interest and buying to keep most stocks on both exchanges at new highs (and so few lows) it is a sign of very strong demand.

Richard Dickson of Lowry Research:
Press play and let it buffer, then jump ahead to the 30 minute mark to listen to the complete interview of Pimm Fox with Richard Dickson:

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3 Responses to “Lowry Research’s Richard Dickson: Short Term Correction”  

  1. 1 PAUL MONTGOMERY

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    I spy with my little eye………
    significant divergence on that Nasdaq New High / Low Chart.

    What is the symbol for the chart in StockCharts please [can’t get an exact match of your chart]?

  2. 2 Babak

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    Paul, the symbol is $NAHLR - the r is important because it makes it relative so you can compare across time. Let me know if you spy anything interesting :)

  3. 3 PAUL MONTGOMERY

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    Thanks Babak.

    I spy with my little eye………
    LESS :o ) divergence on that Nasdaq New High / Low Chart - know $NAHLR is pretty volatile.

    Thought saw some divergence some on Nasdaq New Highs generally, but today’s action has nullified that.

    May still have some more subtle divergence if you are interested - would need to wait till tomorrow for confirmation though.

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