Paul Desmond, President of Lowry's Reports Offers His Outlook For The Economy
Monday, September 10, 2007SUZANNE PRATT: Many investors are fretting about the possibility of a recession and a bear market for stocks. One noted market observer says those are valid concerns because of the volume patterns seen in the stock market since the July top. Jeff Yastine talked with Paul Desmond, president of Lowry's Reports and began by asking if he sees the bull market continuing or larger declines ahead.
PAUL DESMOND, PRESIDENT, LOWRY'S REPORTS: We think we roll into a bear market. We think we are in the early stages of a full-fledged bear market. We generally, the cycles of bull and bear markets follow a regular course. They tend to occur at about a four-year or 52-month cycle. In this case, the last major market bottom was in October of 2002. And we should have already seen a market top. So this bull market has been -- lasted longer than most bull markets last. And when that has happened in the past, it's generally lead to a more intense bear market when it finally does develop.
JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: One of the things you are looking for are these 90 percent upside days, 90 percent downside days. Explain those for a moment.
DESMOND: In the process of the panicked selling, we see what we refer to as 90 percent downside days which means that 90 percent of all of the volume, 90 percent of all of the price action on a particular day was on the downside. It simply means heavy panic selling where people are just dumping stocks as fast as they can get out. Generally in a major decline, you will see a series of these 90 percent downside days on the way down.
YASTINE: All right. So we've had a market decline since mid-July or so. How many of these 90 percent down side days have we seen so far?
DESMOND: Well, this market has been highly unusual in that we started to see these 90 percent downside days, these panic selling days very quickly after the top. The top of this market was on July 19th. That is where the Dow and the S&P topped. And by the 23rd, we were seeing our first 90 percent downside day. What that says is that investor psychology is extremely nervous, that they are on the edge of panic on a fairly regular basis. And that's -- that's the kind of environment that an investor should step aside from. You don't want to be -- you don't want to be caught in a panic situation.
YASTINE: So people who follow your methodology might think all right, we've seen a bunch of these 90 percent downside days. The bottom in the market has to be close at hand.
DESMOND: Well, if you go back in time, for example, if you go back to the 1973, 1974 bear market, we had 14 of these 90 percent downside days between early -- early 1973 and the bottom in December of '74. So the history says that when you start to see two or more 90 percent downside days, the best policy is generally to get to the sidelines and wait out the decline, just be very patient and relaxed until the last 90 percent downside day is eventually followed by a 90 percent upside day. And that would be a relatively strong indication that we probably turned the corner and the bear market is over.
YASTINE: Paul, thanks for your time.
DESMOND: You are more than welcome.
YASTINE: Our guest Paul Desmond of Lowry's Reports.
