By Thom Calandra, CBS.MarketWatch.com Last Update: 10:36 AM ET July 26, 2002 SAN FRANCISCO (CBS.MW) -- Paul F. Desmond, the market researcher who tracked bear market bottoms and bull market tops back to 1933, sees no indication this week's rally takes investors to the fruitful land of a bull market. "Before (the) rally began, almost all of our short-term indicators, and many of our intermediate trend indicators, were at deeply oversold levels," says Desmond, whose research suggests bear market bottoms are accompanied first by frantic selling, the kind that puts 90 percent or more of all NYSE volume and price action in the red, then by frantic buying. "As of Tuesday's close, the percentage of stocks above their 10-day moving averages stood at 1.9 percent, the lowest level in more than a decade," says Desmond, president of Lowry's Reports. "So, it is not at all surprising that a strong, snap-back rally developed from that deeply oversold condition. And, this rally could easily last for a number of weeks." Still, says Desmond, the stock market has not seen all-out, got-to-dump-these-losers selling since the trading session of April 3, 2001. In 1999 and 2000, there was not a single day in which negative volume on the New York Stock Exchange amounted to 90 percent of the total, with 90 percent of all points gained and lost in the red as well. This week, the Dow's big day did not qualify as a 90 percent upside day, either. Upside volume on Wednesday's big Dow day registered less than 85 percent. Buying surges in a bear market are a sign of demand for stocks. Genuine demand in Desmond's book is marked, once again, by days when volume and price changes are 90 percent or more in the black. A combination of these panicky up and down days have been an ingredient of virtually every bear market bottom since 1933, he says. "Several of the more important indicators that are found only before major market bottoms are still missing -- such as the lack of 90 percent downside days, the minimal number of stocks at new 52-week lows, the still high level of our Average Power Rating Index, and the still high level of the P/E ratio of the S&P 500 components. Based on those factors, we view (the) recovery as a rally within a continuing bear market." Lowry's Reports has been supplying technical research to Wall Street banks and trading desks for more than 60 years. The firm's power rating index is a proprietary measurement of relative strength applied to about 900 individual stocks. "We have been compiling this indicator since 1949, and it has been very helpful in identifying almost every major market bottom since that time," Desmond tells me. "In the present case, although the APR has been dropping rapidly, it is still not down to the levels seen at major bottoms in the past." Read more about Desmond.
I think the market we are in right now is controlled almost 100% by traders. There are almost no dumb retail buyers. On days that the market starts to rally, stocks that don't move up instantly get thrown out the window and the ones that are moving up get more action. The instant access to charting and price action that all traders now have must make this market alot different than it was 10 years ago. If I am holding xyz and the market starts heading north xyz better start moving up or I will get on a stock that is. I think only in a dumb market will 90% of all stocks move in the same direction. I don't think there are many retail buyers calling their brokers and telling them to buy their old favorites. What the hell would you buy and hold in this market? I have only been trading for 2 years so I don't know what the market was like before but it sure has more mood swings now than 2 years ago. The market either needs to start taking Prozak or or else I do.
Liquidity TrimTabs has one indicator that is bullish (short term). So things seem to be pointing to a bounce.
I had posted these numbers on another thread a few weeks back, but since this is sort of on topic here it goes: From Value Line % of short NYSE sales by public for 7/18 (54%) for 7/11 (48%) % of short sales by NYSE spec for 7/18 (34%) for 7/11 (39%) % of short sales other members 7/18 (12%) 7/11 (13%) % total NYSE short/volume 7/18 (13.5%) 7/11 (11.2%) Not calling a bottom, and this is not the only indicator I look at, but as most who have been trading for a while know if it is too easy to sell it, or too easy to buy it, something is probably wrong.
We've been hearing ad nauseum about the 90% business recently, so I thought I'd add my 2 cents worth. Two points to make: 1) We all know that patterns in the market repeat over time, but we also know that every time we think we've got the market figured out, it throws us a curveball. So why are people so fixated on this 90% business? It would be a nice joke if the market decided to turn on an 85% day, which is close to what we got on Wednesday. History does repeat itself, but not perfectly, in cookie-cutter fashion. Don't be a slave to statistics. 2) When I went back and actually checked the data provided by that university prof on the 90% days, the results were somewhat less impressive than his conclusions made them out to be. As traders, what we care about is tradable trends, and the 90% hypothesis did not provide any sort of litmus for tradable trends. For example, the aftermath of the 9/11 disaster gave us about as dramatic a trend (in both directions) that one could ask for, but produced no 90/90 days. Looking back over his data, there were also some spurious 90/90 days that did not coincide with trend changes. Just some observations.
Sometimes the market does exactly what you thought it would. In it's own time, of course. It might be a curve, but it's still a throw.