Lowry Sees Bull Market Ending 

There is a very interesting podcast at Financial Sense with Richard Dickson, who is the Senior Market Strategist at Lowry Research. The reason that this particular interview is so interesting is that Lowry Research has been one of the primary supports for Jeff Saut's uber bullish view on the markets over the last couple of years. To wit:

“[May 2, 2014] In fact, the SPX has been in a flat-line pattern for almost two months, having only gained 0.03% since March 7th, causing many Wall Street wags to proclaim a major “top” is at hand. However, as Lowry's writes:

‘The 88-year history of the Lowry Analysis shows that such stalemates are relatively common developments during most bull markets. They simply reflect periods in which investor buying enthusiasm is temporarily fatigued, at the same time that sellers are reluctant to part with their stocks, in anticipation of eventually higher prices. Thus, there is not enough Demand to push prices up to new bull market highs, and there is not a strong enough desire to sell to drive prices sharply lower. Eventually, sideways trading patterns are usually resolved through the process of a short-term correction, in which investors become impatient and sell, pushing prices low enough to revitalize buying enthusiasm and launch the next leg of the bull market.'

Obviously I agree with the astute Lowry's organization, and I will say it again, ‘It is too early to know if this is the beginning of a 10%-12% correction.'”

That was so last year. However, very similarly this year, markets have once again been locked in a stalemate with “buyers” fatigued and “sellers” unwilling to part with stocks from fear of missing the next leg higher. 

So what is Mr. Dickson saying now? 

Dickson says when the broader indexes are approaching a top, the advance is led by fewer and fewer stocks, which has been seen at every major market peak they've studied.

This phenomenon registers in the market's widely followed advance-decline line, however, Dickson points out that relative under-performance by small-cap stocks often provides an earlier warning signal to potential trouble ahead. He notes that small-cap stocks began to deteriorate almost a year ago, and many have already entered bear market territory. This is not healthy action, he says.

Based on research conducted at Lowry, this predicts a market top within 4 to 6 months. In the interim, Dickson will be watching a variety of other technical indicators for confirmation, such as buying power and selling pressure.