Q&A: Paul Desmond of Lowry's, Part II

Now that is your proprietary operating company [list], and not the full NYSE?

Yes, that is right. But even [with] the full list of NYSE-traded stocks, we show pretty much that same pattern. Distortions will come in periods like now where bonds are tending to be a little bit stronger than they were from time to time. But still even with the unadjusted numbers, the number of stocks making highs peaked quite some time ago, and each rally since then has tended to be a little weaker than the previous rally. So we made two peaks in January that were about 150 new highs per day, whereas those numbers in July of 2005 were in the 225 range. So you see they have dried up substantially and we think they are going to continue to do that. I was looking at [Tuesday's] data a little bit earlier, and whereas we had been running several hundred stocks making new highs per day, today we have 103.

As we are speaking [on Tuesday], we are up 140 on the Dow. Are you suggesting, considering the strength of today's pop -- the Nasdaq is up over 1%, straight across the board, the NDX, the S&P, the Nasdaq, the Dow, they are all up over 1% -- that we are seeing a modest amount of 52-week highs, given that across-the-board strength?

Absolutely. Yes.

So according to your analysis of bull-market tops, where do you think we are in the cycle. Are we close to the top, getting near the top? Weeks or months away? What's your general take, without scaring the bejesus out of everybody?

We are well in the process of forming a top, but we are not to the final stage of this thing yet.

If we were to measure the final top, based on the Dow Jones Industrial Average, -- which is not the best way to judge a bull-market top -- it is very possible that the Dow has not made its final high yet.

This past week, we took a look at the Dow Jones Industrial Average stocks, the 30 component stocks of the Dow, and what we found was that there were, based on our way of analyzing individual stocks, three of the 30 stocks in strong uptrend patterns -- just 10%. And 20 out of the 30 stocks were in well-defined downtrend patterns. So you can see the selectivity that is present there, with 3 of the 30 stocks in uptrends, 20 in well-defined downtrends.