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John Furlan
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John Furlan has been familiar with financial markets for many of the past thirty years. Please contact him at jf09sa@gmail.com.
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  • Lowry Bullish, Merrill S-T Positive, Swenlin Bull Trap 1 comment
    Feb 22, 2010 4:48 PM
    Every investor knows that a hallmark of the post-Mar 2009 market has been its ability to seemingly inexorably rally on relatively lackluster volume. It has been doing so again since the Feb 5 low. Below are current views from today by leading market commentators on the current rally.
    As I wrote in two articles last week, to me the two big market stories continue to be the global outperformance of U.S. stocks, and the threat of a significant breakout to the upside in long-term rates. Of course there are many other issues lurking, as always, including Greece, Iran, oil prices, etc.
    First are my notes from an interview Feb 22 at 4 pm EST of Tracy Knudsen, Lowry Research Group, one of the top market analysis firms, on Bloomberg Radio by Pimm Fox.  To me, Lowry seems considerably more positive right now than many other market commentators.  Knudsen said:
    Buying Power recently rose above its Jan peak. Selling Pressure fallen to a new low in its downtrend dating back to the March 2009 bottom. Those two things together point to higher prices. Investors are willing to take on more risk, e.g. moving back into mid and small caps. Feb 4 was a 90% downside day. Every bottom since July 2009 low has been 90% downside day quickly followed by a 90% upside day. There was a 90% upside day last Tues, provided very strong evidence that a sustainable low had been established.  An intermediate-trend buy signal from last August 4 has been reaffirmed. Ratio of up volume does appear to be stronger during rally days than down volume during declines. Of the opnion that a major top is not in place.  Uptrend further to go.  Short-term overbought condition. Decline here might offer better risk-reward opportunity. Tend to see advance-decline lines roll over about 4-6 months prior to the market forming a major top. Should also see Selling Pressure start to increase, establish itself in an uptrend.  Not seeing that right now.”
    From Mary Ann Bartels, “Market Analysis Comment,” Feb 22, BoA-ML:
     “This opens the door for a rally into resistance on the S&P 500 at 1130-1150. We can not rule out that a marginal new recovery high is reached. However, the rally so far has lacked conviction – volume remains very light...an improvement in the Volume Intensity Model is key to sustaining an advance…VIGOR, an intermediate to longer-term indicator of accumulation vs. distribution, achieved a new recovery high on 29 January. But, since then VIGOR has begun to tick lower.”
    Iin Bartels' volume indicator chart below, VIM distribution has made a higher high, while VIM accumulation barely budged upward when SPX made a new high on Jan 19.
    LEFT CLICK ON CHART TO ENLARGE.
     


    From Carl Swenlin, “Chart Spotlight,” Decisionpoint.com, Feb 19:
    “The negative side of the picture is that volume accompanying the breakout and subsequent advance only has been averaging about 85% of the 250-EMA of daily volume, which does not reflect broad confidence in the move. This, plus other evidence we will discuss, makes me think the breakout could be a bull trap. Our market posture for the S&P 500 remains neutral.”

    From John Hussman, “Weekly Market Comment," Feb 22:
    “As of last week, the Market Climate for stocks remained characterized by unfavorable valuations and unfavorable market action. Internals have improved moderately during the rebound of the past two weeks, though price-volume behavior remains poor. Interest rates have become notably hostile, and presently would weigh on the prospective return/risk ratio of stocks even if internals were to improve here. That suggests that the rebound we're seeing from the correction low of a couple of weeks ago may turn out to be a whipsaw.”
    From Doug Kass, Realmoney.com, Feb 22:
    “While the market has successfully absorbed bad news, we are moving into some resistance and into a possible overbought, and I expect stocks to be challenged in the weeks ahead. I view the recent market improvement as a rally in a correction rather than the resumption of a new up leg. Three weeks of correcting prices seems short within a historical perspective.”

    From Jeffrey Saut, “Investment Strategy,” Feb 22, Raymond James:
    “last Tuesday when the NYSE experienced a 90% Upside Day, meaning that over 90% of the volume came on the upside with an attendant 170-point Dow Wow. It was the first 90% Upside Day since November 9, 2009 and was accompanied by a breadth reading of 5 advancing stocks for every 1 declining issue. The result elicited a strong expansion in Lowry’s “Buying Power Index” (read: demand) with an even more pronounced contraction in their “Selling Pressure Indicator” (read: supply).”



    Disclosure: No positions in stocks, etfs mentioned.
    Themes: Market Outlook
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    Hey John! Thanks for another great article. I actually find these comments below (by Moody's) to be quite misleading:

    "Every bottom since July 2009 low has been 90% downside day quickly followed by a 90% upside day. There was a 90% upside day last Tues, very strong evidence that a sustainable low has been established."

    What this means is that on a 90% downside day, we see 90% downside volume in conjunction with 90% downside price action (according to Moody's).

    But the claims by Tracy Knudson of Moody's that "every bottom since July 2009 low has been 90% downside day quickly followed by a 90% upside day", fails to mention that the volume itself, on down days is hugely more vast than volume on up days. That's a far more important factor than the fact that they "were" 90% down or up days. Huge volume on down days and diminishing (if not miniscule) volume on up days is far, far more revealing (and alarming). She fails to mention that.

    This statement by Ms. Knudson really irks me: "There was a 90% upside day last Tues, very strong evidence that a sustainable low has been established." That statement is absolute hogwash, because even though it was a 90% upside day, there was damned near no volume at all. It's very easy for the pump jockeys to create a 90% up day when they're the only people trading (to each other as has often been proven). They can manufacture whatever they want. But when there's no volume... it's a phony as a 3 dollar bill. Her conclusion is spin and nothing else, and she knows damned well it is. Her name just got added to the list that Bozo Cramer's is on. "Wall Street's Useless Tools"

    .
    22 Feb 2010, 06:33 PM Reply Like
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