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.
