Just got off the phone with Paul Desmond, the senior man at Lowry's, the oldest technical analysis service in the U.S., founded in the 1930s.
Paul said it is difficult to pull out volume trends during holidays and storms. He reiterated that the market is not showing any signs of a long-term top as of yet.
Why does he feel that way? I noted that the number of stocks advancing to new highs at the NYSE appears to have stalled. He noted that the data is obscured by the fact that of the roughly 3,000 instruments that trade on the NYSE, about half are closed-end funds, preferred stocks, or bonds.
Taking those out leaves you with about 1,600 domestic stock companies, and with that group there is indeed significant advances. As of this week, the cumulative total of advancing issues minus declining issues is at its highest in over a decade.
"That suggests that the market may be headed for all-time highs, above the 2007 highs," Desmond says.
Other longer-term indicators are equally bullish. Example: the percentage of stocks above their 20-day, 10-week and 30-week moving averages are all above 80 percent...no sign of contraction.
Desmond notes that there has never been a major market top formed when the number of stocks participating in the advance is broadening.
Other indicators are also saying the market has not topped out. Lowry's Buying Power Index, a measure of buying interest, is at a new Bull Market High, the highest since March of 2009. The Selling Pressure Index is at a multiyear low.
"If you go back to the 78-year history of Lowry's data, you will never find a major market top having been formed while the Selling Pressure Index is dropping to new lows," Desmond said.
Does that mean the market will not go down? No. He made it clear that short term indictors are overbought...for example, the percentage of stocks above their 10-day moving average has topped out and has been declining for the last two weeks, and is now below 75 percent.
During big rallies, you get 90 percent of stocks above their 10 day moving average...but when it drops below 75 percent, that is traditionally a warning sign, though Paul notes that often the correction does not occur until it drops below 50 percent.
"We're expecting a fairly stiff correction, somewhere in the seven to ten percent range, some time in January," Desmond told me.
However, they are looking at that correction as a buying opportunity, because the longer term indicators are saying that the market has further to run.
What about sentiment indicators like bull/bears? It's one thing about what people say, another what they do. "I would rather pay attention to the actual buying and selling of investors," he said. "Our numbers are based on what comes off the ticker. If people say they are bullish, how do you know they have money to invest? If they don't have money to push the market higher, than their bullish opinion doesn't count...the only people who count are buyers who push prices up or sellers who push them down."
Bottom line: Desmond is looking for a ten percent or so correction in January, but the longer term uptrend remains intact.
And what about that comment that we may be heading for all-time highs? We are not far off: the small and midcap indices (SML and MID, respectively) are only about 6 percent from historic highs.
Bookmark CNBC Data Pages:
Questions? Comments? email@example.com