INTERVIEW
The Grand Old Man
Technician Walter Deemer
by John Sweeney
Walt Deemer began his Wall Street career in 1963 as a Merrill Lynch research trainee. Since then, he has seen the ebb and flow of Wall Street through booms and busts, spending time with the Manhattan Fund in the mid-1960s -- arguably the best known of the Go-Go funds of the period -- and with Putnam Management along the way, managing to be one of the founding members of the Market Technicians Association (MTA) in the early 1970s before forming Deemer Technical Research in 1980, offering market strategies and insights to institutional clients on a consulting basis.
He has appeared on the Nightly Business Report and Wall $treet Week television programs. He is the featured technical analyst in Dean LeBaron's book The Ultimate Investor: The People And Ideas That Make Modern Investment, joining such well-known financial professionals as John Bogle, Peter Lynch, and George Soros. STOCKS & COMMODITIES Interim Editor John Sweeney spoke with Deemer on January 19, 2000, via telephone.
ILLUSTRATION BY CARL GREEN
Walt, you're the classic technician and you've been around for a long time. How did you get started in technical analysis?
I attended Pennsylvania State University in State College, PA, back in the early 1960s. There was only one brokerage office in town, and there was a broker there who was a technical type. He told me about a book by Joe Granville, titled Strategy Of Daily Stock Market Timing For Maximum Profit; I read it, and I was hooked.
I think that book influenced a lot of people.
A lot of us budding technicians in that era cut our teeth on that book. It seemed to make sense, and at that point, I started following the market technically. Also, the market crashed in 1962, and technically, you could see that happening a mile away. So the technical types in the brokerage were on the right side of the market while everybody else was panicking. That impressed me.
What kind of tools were they using?
Advance–decline lines, mostly, and Lowry. The Lowry's service calculates buying power and selling pressure, stock by stock, for the New York Stock Exchange [NYSE] and then comes up with an aggregate, thus throwing volume into the advance–decline equation. Lyman Lowry started doing it back in the 1930s; he did it by hand.
For the entire market?
For the entire NYSE, which did not have as many issues back then. Lowry's is one of those nearly ubiquitous technical tools; if you go into any technical department in a major brokerage house, or in any major institution that still has a technical department, you'll probably find the Lowry's "Buying Power and Selling Pressure" chart up on the wall somewhere.
It's still being published?
Yes, it's still going strong.
Amazing. What happened after school?
I started working for Merrill Lynch in their research training program in 1963. I wormed my way into the market analysis department less than a year later, working for Bob Farrell. I kept all of the Merrill Lynch technical figures.
Merrill's Bob Farrell is a legend in himself. What was working for him like?
He deserves to be a legend. He did the thoughtful kind of technical analysis that I wish there was more of. Farrell is one of these contrary thinkers who looks at what people are saying and then leans the opposite way. It pays off more often than not.
Both technically or just from a market sentiment standpoint?
Just from a market sentiment standpoint. The technical views very often give you the ammunition you need to be able to lean against the crowd.
Do you feel you learned a lot working for him?
Absolutely. You could not help but learn a lot. For instance, they broke the institutional trading accounts down -- at least back then; I don't know if they still do -- into 10 subbrackets, so you could monitor subsets of institutional trading. The best ones, the ones that were most often right, were corporations and banks trading for their own accounts.
What were the worst?
The very worst, without question, were bank trust departments -- and nothing in the 35 years since has made me think any differently. When you're looking at sentiment, you want to observe classes of people who are usually right or usually wrong; you don't care which, as long they are consistent. In those days, the odd-lot houses kept inventories; odd lots in those days accounted for something like 10% of NYSE volume. If the odd-lot houses were short-term bullish, they would keep a very high inventory. If they were short-term bearish, they would keep a very low inventory. Well, the odd-lot houses were one of the classes of people who were almost always right. Odd-lot houses have gone the way of the dinosaur, but it was interesting to follow.
You still follow short-selling, don't you?
I still follow short-selling, but it does not really work anymore. At least I have not had much luck with it of late.
Are there any other groups beside banks trading for themselves that are right more often than not?
The general public. The cash accounts. When the market crashed in 1962, we were all sitting in the brokerage office in State College, PA, watching the ticker tape, and farmers who hadn't been in the brokerage for years came in and bought some GM stock, if I recall. The public would just come in when the prices were cheap and buy. They were usually wrong at short-term turning points, but they were usually right as far as the big picture was concerned.
So they might miss swing turns, but they would usually catch the major turns.
Right. The biggest buying on their part usually came the day after a big move off a bottom, for example. For a short-term trader, a move like that is important, but for a long-term investor, it doesn't mean much. I don't know if that happened in the 1987 crash, but this is what happened in the 1962 market correction.
The institutions are the elephants of the market. They're the ones making the trends. Retail traders can play around them, though, because they can be flexible. -- Walter Deemer
Excerpted from an article originally published in the April 2000 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2000, Technical Analysis, Inc.