Trader’s Narrative

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):

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