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Paul Desmond Lowrys 90/90 Stock Market Signal





Lowry's research into what market internals create bear market bottoms has quickly become common knowledge among technical analyis buffs.

If you haven't already, follow the link to read the complete article (in the Charles H. Dow Award folder).

I've written about 90-90 days quite a bit because it has continued to be an almost uncanny guide for the past few years. Most recently, we had a 90-90 up day last week.

Here's an interesting article from Schaeffers Research on the rare instances when a 90/90 down day is immediately followed by its opposite (a 10/10 day). This happened on August 17th, the day after that picture perfect hammer printed on almost all indices.

Here's a graph from Schaeffer's article (click to enlarge):
schaeffers research lowrys paul desmond research.png

But according to Lowry's itself, things may not be so clearcut. Believe it or not, in the past month, the market has given us 8 90/90 extreme days (either up or down). Lowry's calls it "the greatest rash of extreme volatility in at least sixty years."

Their conclusion is a bit more sanguine:

"With the evidence currently available from our measures of Supply and Demand, the probabilities favor a limited recovery rally. The 74 year history of the Lowry Analysis shows that such rallies are usually best used to sell into strength and build defensive positions. However, it is important to recognize that exceptions to the probabilities are always possible."

Since they are the inventors and keepers of this measure, I'm glad to give them the last word. But I'm afraid their conclusion is as clear as mud.

This is a lasting rally, unless it isn't.

Um... Thanks.

Credit: Bob Pisani's Trader Talk Blog

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7 Responses to “More On Lowry’s 90-90 Signal”  

  1. 1 Markus

    "Clear as mud"? Equity markets are consolidating in a wide range. An up break-out has a high probabilty to be a false one - therefore sell some of your long stocks. Credit markets are still tense and could get much tenser before we really rock 'n roll...

  2. 2 Babak

    Markus, of course. I was referring to their last sentence.

  3. 3 Markus

    Sure, the last sentence is the analysts' insurance or safety line ;-)

  4. 4 Stock Market Man

    It looks like Lowry's was right. The stock market went up but then, well, we all know what happened.

    Insisting on a simple "buy" or "sell" when you're told the market is likely to go up in the short term and then break down, is foolish. Only those who can deal with complexity will do well trading the stock market because the stock market is all about complexity. We need to look at history as well as current data to get the clearest possible picure and then make our best guess.

    Here in the future, July 6, 2009, Lowry's has been clearly stating much the same: a weak market that is likely to break down and go to new lows. I pay and follow three advisors: Gene Inger, Richar Russell and Lowry's and they all state or suggest that that the stock market is likely to break to new lows in the coming months.

    I just added to my positions of SRS at 21 and SDS at 58.

  5. 5 Babak

    SMM, I'm familiar with Russell and Lowry but hadn't heard of Inger before. Can you tell me a little more about him? thanks

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