…the group that dominates trading is the one that dictates the major trends of the market.

An Example

Let's say you're a stock buyer, and I'm a seller.

If you are dominant in our transaction, then you will be willing to pay a little bit extra to wrest the shares out of my hand—pushing prices up.

If I'm dominant in our transaction, then I'll be willing to let my shares go for a little less than I might have originally wished, just to dump them out of my portfolio.

A one-year chart of the two forces is shown below.

Note that NYSE buying pressure sank below selling pressure in late July last year, which is the classic Lowry's signal of the start of a significant market downturn ahead.

Also observe that buying pressure fell even as the market was hitting new highs in October, and has been deteriorating ever since. This is valuable to recognize because the buying of a few large stocks that dominate an index like the Dow Jones Industrials Average can make it look like an entire index is advancing even when most stocks within the index are sinking.

Buying pressure analysis is sort of an X-ray that lets us see through the surface of the market into the real balance of supply and demand.

Since buying pressure last week was still falling and selling pressure rising—both to historic levels, by the way—we must conclude that it is too early to look for a major market bottom.

And so if the probabilities do not favor the start of a massive new uptrend ahead, then periods of market strength developing in the near future are likely to be opportunities to sell into strength in anticipation of still lower prices.

That is why we're going to be looking for profitable new short opportunities soon in my Trader's Advantage letter, much as we have over the past seven months.

In just the past few weeks, we've closed out a 29% profit shorting chip-maker Infinera (INFN), 20.2% shorting equipment maker Terex (TEX) and 17% shorting online travel agency Orbitz (OWW). We still have an open short position in Puerto Rican bank Oriental Financial (OFG). And we'll be gunning for more soon, so be sure to check in to the lastest issue of Trader's Advantage.

Jon started Trader's Advantage to provide valuable tools so that investors like you always have the guidance and confidence to make smart decisions about your investments. See for yourself—accept a risk-free trial subscription today!