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Selling Vacuum Supports Uptrend at Trader’s Narrative




Selling Vacuum Supports Uptrend


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Last week we reviewed the latest position of Lowry Research on the stock market: Turbulence Ahead, Uptrend Intact. One of the major reasons that Lowry’s continues to believe in the health of the market and a continuation of the uptrend is the lack of selling pressure.

Lowry measures this through their proprietary metric called (what else?) Selling Pressure. It remains low and falling, helping to support the thesis of a healthy market rally. According to Paul Desmond: “Every major market top in Lowry’s 76-year history has been preceded by a sustained rise in selling pressure. With selling pressure recording a new 12-month low within the past two weeks, no such rise is now evident.”

This has got to be frustrating for the bears. But it is also unbelievable to the large number of participants in the market who continue to look at the current price levels as a mirage. The US retail investor is not venturing out into equities, even after watching the stock market climb a wall of worry inch by inch.

This has been and continues to be the most hated stock market rally that I’ve ever witnessed. In any case, it is comforting to confirm Lowry’s proprietary measure of selling pressure with a similar measure from InvesTech.

Click chart to see larger version:

selling vacuum investech chart Nov 2009
Source: InvesTech

Jim Stack, the writer of InvesTech has a handy checklist for new bull market conditions. One of them is this metric. And along with the rest of the list, it has been flashing a bright green buy signal for a few months.

As well, the month of November has been historically one of the best months for the S&P 500 since 1950. I’m not sure that another 20% rally by year end will convince the retail investors to risk their money in the stock market again. But we may just see that.

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3 Responses to “Selling Vacuum Supports Uptrend”  

  1. 1 Mike C

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    According to Paul Desmond: “Every major market top in Lowry’s 76-year history has been preceded by a sustained rise in selling pressure. With selling pressure recording a new 12-month low within the past two weeks, no such rise is now evident.”

    The major problem here IMO is what if the Lowry’s measures on buying pressure and selling pressure are no longer valid or predictive.

    Perhaps most have forgotten or did not note (I did) that the Lowry’s measures failed spectacularly at the March bottom and the beginning of this rally. I recall this quite clearly because Richard Russell would cite the Lowry’s buying pressure basically every day in March, April, and May as to how low it was and therefore most likely not a sustainable rally. Well, here we sit 8 months later with the S&P up 60% at 1050.

    So I guess the question is if Lowry’s buying pressure metric was completely, utterly wrong at the beginning of the rally in March-April, whose to say the selling pressure metric won’t fail just as badly at the top regardless of the 76-year history.

    I’m still about 50% equities, but this rally does seem like a mirage. We are back at very high levels on Tobin’s Q and Shiller’s P/E so valuation is no longer supportive, so technicals is all you really can rely on here to stay long, and they seem very misleading with things that formerly worked breaking down. I think it is time to go back to the basics like trendlines, support and resistance levels, and maybe the 200 DMA as the line in the sand.

  2. 2 Babak

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    The probability that Lowry’s proprietary metric may be misleading is why I mentioned InvesTech’s measure of supply. Now, could they both be wrong? Sure, that’s possible.

    When the S&P 500 was trading around 1095 I warned that it had bumped its head on a ceiling (of sorts).

    re valuation (Q and PE) they are notorious for being too early. So yes, you’re right, it just doesn’t make sense in anything other than the long term but in the sweet spot between tomorrow and the long term, the trend can continue. If you realize it, you’re part of the masses who just ‘hate’ the rally and are suspicious of it.

  3. 3 shawn M

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    I have been subscribing to Lowry’s for about a year after hearing much positive feedback from well-respected technical analysts. In particular, Louise Yamada gave them a lot of credit for calling the bear market in the *fall* of 2008.

    They have been consistently bullish since a little whipsaw in July on the fake-out head-and-shoulders.

    I have taken note of another key indicator (in addition to Selling Pressure) that Lowry puts significant weight on: the A-D Lines. Lowry’s says that through their 76 year history that the A-D line has always shown a negative divergences at least 4 months before a major market top.

    On the other hand, during Louise Yamada’s recent interview on kingworldnews.com she said that during the 1937-1942 period, the A-D line’s predictive ability, in particularly, was not *working properly*. She did not explictly and directly say Lowry’s was overly bullish on equities, but that was the message I took from her interview.

    Shawn

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