This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Q&A: Paul Desmond of Lowry's Reports

Editor's Note: What follows is part I of Paul Desmond's interview with contributor Barry Ritholtz. Tune in tomorrow for part II.

Paul Desmond, president of Lowry's Reports, is known as a "technician's technician." In 2002 he won the Charles H. Dow Award for excellence in the field of technical analysis for his studies on how market bottoms are formed.

More recently, he's been looking in the other direction, studying how market tops are formed. It has been a long time coming: Many years ago, Desmond's firm bought microfiche of The Wall Street Journal for 1920-1933. They laboriously converted the printed stock tables into digital form -- that's all market activity for every operating company stock listed in the stock tables, including the opening and closing prices and high and low volumes. From this unique data source, Desmond analyzed the 14 major market tops from 1929 to 2000, trying to identify similarities. His findings are startling and impressive.

Let's talk about bottoms a little bit because I recall reading a paper that you did that won the 2002 Charles Dow Market Technician Association award. The study on 90% downside days.

Yes. I had been reading a great deal of material about what market bottoms looked like. And one of the people that I happened to be reading was a fellow named of S. Gould, who talked about a classic market bottom in which he assumed it all occurred in a single day. That the volume was very heavy in the morning on the down side, that is stabilized in midday, and then by the afternoon, it was again rallying strongly again on substantially expanding volume. I simply went back through our history -- which extends back to 1933 -- and I was looking for those classic bottoms as Gould had defined them. I found very few, maybe one or two cases that fit his definition. But it became apparent to me that what he was talking about was an idealized situation and not actual experience.

So I went not only through his work, but through a number of other people's work where they were talking about what a market bottom looks like. I could not find any of them that really worked or fit preconceived notions. So we started looking for some pattern that would help us to identify a market bottom. We knew that the most important consideration of a market bottom was panic; the final step in a downtrend is that investors panic and throw in the towel. They want to abandon the stock market without any consideration of the value of their portfolios.

The classic expression is, just get me out, I don't care about the price, I gotta make the pain stop.

That's exactly right.

Looking at 1987, many people generally think that that was a one-day wonder to the downside -- that it was a one-day debacle. But I've looked at the month before and saw a big build-up in volume and a pretty hefty decrease in price before that single-day crash. How did you find 1987 to be, compared to other bottoms?

Well, the panic stages of it occurred in three particularly important days. The first one was on the 13th of October, a Wednesday. And then the 14th was a Thursday, and that was a 100-point downside day. Now at that point, a 100-point downside day then was something very spectacular. The 14th was a 100-point downside day on the Dow and it showed intensity, and that is where we had our major sell signal on the 14th for October. Then Friday the 15th, the market also dropped 100 points. So, to have two back-to-back 100-point downside days was pretty spectacular. Then on Monday morning, the 19th, the real crash, the 500-point drop, occurred. Now that was 90% downside day, which showed that there was real panic. ( Editor's note: Lowry's defines a 90% downside day as a session with 90% downside volume in conjunction with 90% downside price action, meaning 90% (or more) of the price movement of all stocks on a given exchange is lower.)
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
KO $43.36 0.00%
SNE $26.51 -1.67%
AAPL $118.03 -0.71%
FB $105.41 -0.31%
GOOG $748.15 -0.02%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs