Wed 15 Jul 2009
Lowry’s Buying Power Index nudges record 1933 low
Posted by Prieur du Plessis under Investment, Markets, Money
[6] Comments
I regularly monitor the breadth of the stock market, or so-called market “internals”, for guidance regarding the most likely direction for equities. This is worthwhile research as I have often seen breadth leading price.
Few breadth studies are as insightful as those provided by Lowry Research, as reported below by Richard Russell of Dow Theory Letters fame.
“Following are a few facts that I found fascinating. On May 8, Lowry’s Buying Power hit a high of 172. Since then, it has been falling. On July 2, Buying Power dropped to 95. This was one point below the level of Buying Power on March 9, which was 96.
“In the 78-year history of Lowry’s, Buying Power has never dropped below its level at a supposed bear market bottom. In other words, Buying Power is now below where it was at the “supposed” March 9 bottom.
“Buying Power has now fallen to its lowest level since September 1942.
“The lowest level of Buying Power in the 78-year history of Lowry’s occurred in February 1933 during the depth of the Great Depression. As of July 10, 2009, Lowry’s Buying Power was only 9 points above that level.
“What makes the situation even more ominous is that Lowry’s Selling Pressure is at 885, and it has been climbing steadily since a low of 857 recorded on June 1.
“The key to Lowry’s is not the absolute level of its Buying Power Index. It’s the relationship between Buying Power and Selling Pressure.
“The span between declining Buying Power and rising Selling Pressure hit a 78-year record distance of 807 on July 8. The wider the span, the more bearish the situation.”
It sounds as if a very cautious approach is in order.
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July 15th, 2009 at 7:45 pm
What comprises the index and where is the historical data published?
July 16th, 2009 at 3:16 pm
A contrary view of Lowrys “all time low” buy measure is that it comes as the market has been consolidating. Any move to the upside could be explosive, to say the least.
The Coppock Guide turned up at the end of May…a very bullish signal. Coppock false signals are rare but one did occur in late 2001.
July 16th, 2009 at 4:49 pm
The Lowry indicator is partially based on Up and Down volumes. As it is surfacing now, a lot of the volume in the market these days seems to be related to high frequency trading, with little connection to real net buying or selling. I suspect that volume based indicators have lost a lot of their predictive power. But this is a guess, no way to actually proving it.
July 16th, 2009 at 7:35 pm
Cheapy: The Buying Power Index and Selling Pressure Index are measures of demand and supply, taking both volume and points movements into account. The indices are not published in the public domain and are only available on a subscription basis from http://www.lowryresearch.com.
July 25th, 2009 at 10:51 pm
Please note that the DOW bottomed in 1933. That same year from its bottom of 49.68 (a higher bottom than the bottom put in the year before) it topped at 110.53 just 5 months later (about a 122% return). So, one has to wonder if at times this indicator is a contrary indicator. With out the data or method to recreate the data it is impossible to know. However the fact that it is being touted as bearish makes me wonder just when the numbers in the article were hit. After the DOW hit 110.53 that year it pulled back to 83.57 so if the numbers in the article were hit around the 110 area we need to be worried about a pullback but if those numbers were hit before that time when the DOW was in the 49 area… well that would be a good thing. There is not enough data in the article to make a good decision. Oh yeah, that was a bottoming process and the DOW went up right into 1937 and ended that run just shy of 200.00… again it makes me wonder if at times this is a contrary indicator.
July 25th, 2009 at 11:00 pm
Please accept my apologies just re-read the article, you did say that the low in the indicators numbers were in February of 1933. February was the low point for the Dow that year and if you were alive and bought that month you were a very happy investor. So it looks like at times this indicator gives a very good contrary signal that should indicate a great time to buy.