Richard Dickson, Chief Market Analyst at Lowry Research, recently joined Financial Sense Newshour to give an update on their buying power/selling pressure gauges and to explain why they don't see any signs of a market top, whether it's possible to "time the market," and the likelihood of another 10% correction before heading higher.
On their gauges and a market top, he said:
“What’s really been happening over the last month or so has been more of a drop in selling pressure than a rise in buying power…overall [however], the balance is fine. You have a very nice positive spread between buying power and selling pressure. So, we’re not seeing any of the usual signs that would suggest this market is getting anywhere close to an end.”
“When you look beneath the surface of the market—you don’t just look at price—and you look at what’s going on with supply and demand, what’s going on with breadth of the market, are you seeing the signs that traditionally have led to market tops? The answer there is no. We just recently had new highs in all advance-decline lines. We just talked about buying power and selling pressure. The balance there is very very positive. So where is the indication that this market is done? That we’re teetering on the edge of a bear market? The idea that’s popular in some circles is that you can’t possibly time a market top. That sort of goes against what we’re just talking about, but that is a very popular idea that you can’t forecast a market top and that you just have ride through the ups and downs of the market—bear markets, bull markets—just keep on riding. Certainly, from our perspective, that is patently not true. We’ve been able to identify basically every major market top and we’ve had over the last 40 years (well, even longer than that: Lowry’s has been around 88 years as far our data goes) and you see time and again the same kind of signals that occur. The melody may be different, but it’s still the same song. And it’s not there right now—it’s just not.”
Are there any rules that we have to see a 10% correction?
“We’ve already had two corrections well over 10% from 2010 to 2011 in this bull market and, historically, if you go back and look at the various bull markets and use the Dow Jones on a closing basis, we’ve never had more than one 10% correction in a bull market… Since 1940, we’ve never had more than one, so this has been a little unprecedented in the fact that we’ve already had two. So, to say “well, we need another one”…my response to that is we’ve already had two, how many do you want?… As things stand right now, any pullback, whether it’s 5% or 10%, in our opinion, would simply be a buying opportunity.”
What about seasonality: Sell in May and go away?
“Seasonality is very nice as a background indicator, but if you were for instance starting to see signs that this market is acting fatigued on a short-term basis and, yes, you could get a correction…maybe you ought to pay attention to that. But if it’s not there…the seasonality thing, I think, can be very dangerous to investment health. You have to go by what the market is saying. If it happens to coincide with the market seasonality factor, fine. But any of this cyclical stuff—the Presidential cycle, the various cycles for the years of the decade, that sort of stuff—it makes for good cocktail party conversation, but as a standalone investment philosophy, I think it can be extraordinarily dangerous.”
So, in summary, you’re saying that any pullback is a buying opportunity and look at areas of strength?
“Absolutely. And the things that we’re seeing that are showing signs of strength—energy is certainly one. It’s only up 1%, but certainly over the last month or so energy stocks have been behaving very well and our shorter-term measures of supply and demand support that. They’re showing a process of accumulation even through this decline that we had in February… Finance has been to the front and to the back, it’s sort of moving to the back again. So, we’re not looking at that too strongly. Healthcare—the same thing. Healthcare had been leading for a long long time and starting about two months ago, healthcare really started to show signs of deterioration. So, we’d be very wary now of the healthcare area.”