No Bull Market Here

The spring rally that started on March 9th 2009 took the Standard & Poor’s 500 Index 37% higher by May 8th (almost two months exactly). Since then we’ve been bobbing and weaving, first lower, then higher but really not going anywhere:

It could just be that we have no come into areas of resistance which last pushed back prices in early January. Or there could be more a more insidious reason for the recent weakness in the equity market.

In a recent Wall Street Journal article, Paul Desmond, the award winning head of Lowry Research, argues that what we are seeing is not the start of a real bull market:

“A new bull market is one when investors are prepared to commit larger and larger amounts of new money to equities… What we have seen here is a very consistent drop in total volume going back to early April. Investors are risking smaller and smaller amounts of capital and that is a bad sign.”

Mr. Desmond says his data, going back to the 1930s, don’t show any new bull market with such a weak volume trend, which leads him to believe that this rally won’t become a lasting bull market.

Among the many metrics used by Lowry Research are two proprietary ones called ‘buying power’ and ’selling pressure’. Accordingly a bull market is distinguished by a rising buying power measure and falling selling pressure. While stock prices have certainly risen, there isn’t a demonstrable strength in Lowry’s buying measure. In fact, demand has been fading.

Comments

[Mad Hedge F...:]

I don't see one either. Ok, people, the sucker’s rally is now over. If you had any doubt, take a look at the insider selling figures for April and May. Corporate selling of stock has soared from $10 billion in April to $63 billion in May. Insider selling jumped from $1.9 billion to $2.2 billion, an enormous amount. Who were the suckers? Inflows to mutual funds and ETF’s ballooned from $7.0 billion to $10.3 billion. Retail investors are always the ones who ring the bell at the top of a move. That explains why dozens of technical indicators are rolling over. They’re are not signaling a crash, but they are not saying we are going up any time soon, either. If for whatever reason you can’t get out, sell short dated calls against all of your positions.

Jun 22 12:54 PM

[TheFounder:]

Interestingly, the S&P crossed the simple 200 day MA but was unable to cross the exponential 200 day MA, where it hit strong resistance.

I think a major correction is ahead of us.

Jun 22 01:58 PM

[jratl:]

What happened to your Coppock indicator? I know its a long term oscillator, but what kind of timeframe is expected before the Coppock bullish signal bears fruit?

Jun 22 02:05 PM

[jeandit75:]

As the economy is set to double bottom, so will the market.

Jun 22 02:30 PM

[Dave Wrixon:]

The economy has to bottom before it double bottoms.


On Jun 22 02:30 PM jeandit75 wrote:

> As the economy is set to double bottom, so will the market.

Jun 22 03:58 PM

[John Mylant:]

Excellent article! In my technicals...(I use RSI & CMF) I have seen a negative divergence in May and I have been waiting for the correction to take place here. I also use Bollinger Bands and since this is the first time the stock has touched the bottom of the band in a long time, I beleive we are headed for a downward trend here. No more up-slope! If I bought this stock for a year and was interested in making money on it right now, I might be looking at a possible Bear Put Spread in the near future after it has confirmed a reversal trend. Its always good to talk about making money on the SPY whenever it is moving.

Jun 22 04:12 PM

[Alex Trias:]

Volumes drying up on the upside, and then picking up as markets explode through long term technical trading support pretty much says it all. It is very useful to compare volume on the NYSE on the days when the S&P 500 broke resistance at the 200 day moving average, with volume on days like today when it sliced through that level like a block of lead through wet tissue paper. The only unresolved question is whether these long term averages, having failed as support, are now transforming themselves into resistance. If so, it is very likely that will, at last, conclude the debate about whether the March rally is the start of a new bull market. If not, then this debate may yet rage on. It can go either way, and will surely do so in the next day or week.

When people are no longer motivated to carry on this debate at all - that is when you'll see your bull market. Unfortunately, by that time two generations of investors will have finally thrown in the towel, sickened and revolted by stocks. Who can say whether that equates to Dow 7,500 or Dow 4,000, or even lower than that? Maybe we see yields at 6% or above on the Dow, as we did towards the bottom of 1932 or 1974? I, for one, have opted not to stick around to find out.

But the point of this meandering comment is this. Forget moving averages and volume and stuff like that. Go to a gym and see how many dudes are watching CNBC while they huff and puff on the stairmaster. See whether anybody even bothers to write articles, let alone comment on them. A day will come when financial news is passe and annoying, and I bet that accompanying this day will be the start of a real bull market you can sink your teeth into.

Jun 22 04:28 PM

[thiazole:]

The volume has really dropped off for the entire month of June - whether the market has been up or down. The fact that the market has been falling on pretty mild volume really makes me believe that this is just a correction. We've all been saying a correction is coming and now that it is happening, so many are saying that it is something more than a correction. Well, hindsight will be 20/20. It shouldn't be too much longer before we know which case it is.

Jun 22 05:25 PM

[RiskReturnO...:]

As long as we hold above 875, we can still be in sideways market trading between 875 and 950. Watch leadership sectors to see if 875 can hold; specifically, QQQQ needs to stay above $34, XLE above $45.

XLY has already broken down after double top (May and June), so we need Tech and Energy to hold this market together. Financial will be wild card, but doesn't look good as consumers continue to deleverage; also, uptick in gas prices and mortgage rates equally bad for consumers and banks.

Personally, I'm selling calls on QQQQ and XLE until at least September to hedge any downside, and collect some premium until the market sorts out which way it will break. Below 875, look for 800 as good support level, where you can close out the call positions and hold the underlying ETFs for a tradeable bounce.

Jun 23 07:25 PM