That reflects the same pattern of expanding demand and contracting supply that has characterized the entire rally out of the March 2009 lows – a rally that's now one year old.
According to Lowry analysts, if you look back over the past eight decades, every major market top has been preceded by a sustained period of rising supply and falling demand as profit-taking becomes increasingly aggressive.
And that's not all. If you look at the six-month stretch that precedes a market top, advance/decline (A/D) lines have always deteriorated for at least six months before a major top. At the moment, by their measures, the U.S. market remains in the first phase of a long-term uptrend, which is the lowest-risk period for new buying after a bear market.
To better understand what we mean, take a look at the following chart:
For still one more measure of selectivity, take a look at the number of stocks making new highs. Historically, that number peaks a year or more before a major market top. At the moment, the number of New York Stock Exchange stocks making new highs is near a new high itself.
This looks "peaky," but I would rush to note that it's mostly because last year's highs were so low they are not hard to beat.
Although the long-term picture is still positive, in the short-term stocks are pretty overbought.
On March 5 – two Fridays ago – we saw what amounted to a 90% Upside Day, with Big Board "up" volume at 93% of total volume. Following a 7.8% advance off the Feb. 8 low, the Lowry analysts point out that this could have been the sort of "panic-buying" attack that sometimes occurs at short-term peaks.
[Editor's Note: As this stock-market analysis demonstrates, Money Morning Contributing Writer Jon D. Markman has a unique view of both the world economy and the global financial markets. With uncertainty the watchword and volatility the norm in today's markets, low-risk/high-profit investments will be tougher than ever to find.
It will take a seasoned guide to uncover those opportunities.
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News and Related Story Links:
- Money Morning Week Ahead Column:
Bulls Overcome Market Tug of War to Send Stocks off to Strong March Start.
- Lowry Research Corp:
Official Web Site.
- Money Morning Investment Research Report:
A Year After the Bear-Market Bottom, Investors Must Still Pursue Profits – Without Ignoring Risk.
Lowry's Buying Power Index Nudges Record 1933 Low.
How is Stock Buying Power Calculated?