Stock Market Buying Power Pushes Rally to New High

By: Money_Morning

Jon D. Markman writes: Checking in with the volume experts over at Lowry Research Corp., it appears that U.S. stock market buying power hit a new rally high last week, while selling pressure hit a new low.

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.

Money Morning/The Money Map Report

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