Wednesday, July 15, 2009

More Confusion

In case you're not confused enough on the market's direction, let me toss this at you. Lowry Research, mentioned in my previous post as predicting a breakdown below the March low, is a very respected company with a good long-term record of getting it right. They've been independently checked on their calls from 1950 to 1975 according to their home page, with an overall market gain of 2 1/2 times the market's performance. Paul Desmond, the president, is the 2009 Technical Analyst Magazine Technical Analyst of the Year. Their proprietary buying power vs selling pressure method apparently works well. But if you take just the buying power half of that tabulation, it correlates to historical lows like this:

Buying power is at the low point of March 9 this year, which is the lowest since September '42. What happened after September '42? The market went right into about a 30% climb over the next 8 months, about like it did at the March 9 low point - both historically fast climbs. The lowest buying power ever was a smidge below this level in February '33. What happened in February '33?

Just one of the most powerful bull runs in history from February '33 to early '37. Lowry's methods compare the buying power against selling pressure to predict the market, and when they do that they get the widest span between the two numbers ever calculated for the current market - indicating a severe downturn. but obviously if you take just the buying power number by itself, it seems to be saying buckle your seat belt, we're igniting into a severe climb.

Are we confused yet? It should be noted, however, that the buy signal interpretation of Lowry's buying power ignores the fact that new bull markets from historic buying power lows always run for years before a next historic low - our present market has put in a buying power low March 9 around 96 then soared in the rally before falling back to this low just 4 months later. Per Paul Montgomery, who updates Dennis Gartman's newsletter on Lowry data, "According to Lowry's, since their data base began some 76 years ago, no new bull market has ever given up all its initial gains in Buying Power, which the current market has done." They see the March 9 low as a stop on the way to the real bottom. If this really was a bear ending rally, the buying power would keep building instead of quickly evaporating.

At least all these signs I've chronicled agree with my basic technical analysis that I detailed in my June 12 Seeking Alpha post- we are at a red light in a big, dangerous intersection waiting to turn. But which way? I tend to favor the basic leadership pattern mentioned in my previous post. It is still intact and functioning and indicates a north turn. But even this sign has a fly in its ointment. The transports are also a critical leadership group, or at least a confirmation group according to Dow theory, and if you look at this chart, you see that the transports are not participating in the recent strength and are a long way from confirming any positive development in the broad market.

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