Last time we checked in with Lowry Research was in early September when they suggested that accumulation would continue. Since then the S&P 500 index has climbed from 1100 to once again challenge the 1220 level.
Lowry primarily relies on their proprietary indicators of demand and supply: Buying Power and Selling Pressure, shown in the chart below. These have been indicating a strong market with continuing accumulation as Buying Power continues to power ahead and as Selling Pressure is muted.
Source: Lowry Research via Market’s Bull Run Still Has Legs
Major tops form after months of Rising Selling pressure and/or falling Buying Power. That is exactly what we are not seeing right now. If anything, there is a lull at the moment but we’ve seen this before. For example, during the time period between April – July 2010. Even then, Buying Power never fell below its previous low point and Selling Pressure never rose above its previous top (in February 2010).
Turning over to another indicator of breadth, the ratio of Nasdaq new highs to new lows, we see that the market is approaching an overbought level similar to early last month and October:
But it isn’t quite as lopsided as January and April of this year when the S&P 500 did succumb to an intermediate top. Another measure of internal market breadth is the S&P 500 index’s own cumulative advance decline line:
This indicator has been keeping up with the underlying index. But it doesn’t have the same spring in its steps that it did a little while ago. That is to say, it wasn’t rare to see the cumulative advance decline line actually take over the index itself for a few days. Now, however, it is acting a bit lazy and just barely keeping up.
Even though the S&P 500 index is once again trading through 1227 the S&P 500 index’ cumulative breadth didn’t reach the same heights that it achieved on November 5th. Neither should we ignore the ‘shooting star’ candlestick formation from today.
There is no question that the market is struggling at this junction and with the off the charts bullish sentiment from the retail option traders, for example, this isn’t all that surprising. For now, however, the longer term outlook remains relatively as healthy as the last time I wrote about it: Short Term Overbought Notwithstanding Bull Market Intact.