E Market Breadth Paints A Bullish Picture

It is always difficult for we humans to separate our gut feelings from cold, hard data. After all, the latter is why we built computers so we don’t have to worry about those silly facts. I know I personally prefer to act on whims based on my extensive life experience as they masquerade for analysis.

That is why in the midst of on-again, off-again trade wars, budget battles, political fracturing, the Fed and slowing global growth it is completely uncomfortable to look at the data and buy this market.

Is it the blood in the streets that Rothschild espoused? Or is it fearful enough for Buffet’s “buy when others are fearful?”  Maybe. The VIX did reach a peak of 36 a short while ago but that’s still just run-of-the-mill fearful.

But then along comes retired institutional market analyst and technician Walter Deemer to spoil the pity party (sorry, Puddles). He’s been tracking the Lowry’s 90% day signals throughout this current market turmoil and reported several of the bullish variety in the past few weeks.

Just so you know, a 90% upside day occurs when 90% of the volume and 90% of the points happen to the upside. It’s a little hard to do on your own and most people cheat a little by using 90% of the stocks moving (advancers) as a proxy for points. But you get the idea.

Paul Desmond, the late chief at Lowry’s, published the full set of rules for this signal but in a nutshell, market bottoms are likely when a few upside days follow the downside days. It tells us there was some panicky action to sell followed by enthused action to buy. The tide rolled out (go Clemson!) and then rolled back in.

Of course, we see a lot of isolated upside days in bear markets so it is important to have a few upside signals in a cluster. Clustering is even more important when there are only 80% upside days, instead of 90%. Clustering of both kinds seems to be the case now.

And then on January 4 (a Friday), Deemer tweeted this:

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Disclosure: No positions in anything covered.

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