Data Turns Very Bullish
All of the indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as volumes rose from the prior session. While most closed well above their intraday lows, all but two closed below their respective near term support levels, yet again, while breadth weakened further. Yet while we see no positive signs from the charts at this point, the data is pounding the table suggesting a turn is forthcoming. However, until we actually see some improvement on the charts and market breadth, we are forced to maintain our near term “neutral/negative” outlook for the indexes.
- On the charts, all of the indexes closed lower yesterday on heavy volume with negative internals on the NYSE and NASDAQ. While all closed well above their intraday lows, every index with the exceptions of the COMPQX (page 3) and NDX (page 3) closed below their near term support levels once again and stayed in short term downtrends. The COMPQX and NDX did violate on an intraday basis but managed to close back above. As well, the NYSE cumulative advance/decline line turned negative from neutral, joining the All Exchange and NASDAQ A/Ds. Breadth remains very poor.
- Yet on the other side of the fence, some of the data is strongly suggesting a near term bottom is being established. All of the McClellan OB/OS Oscillators are oversold (All Exchange:-72.38/-105.65 NYSE:-68.44/-96.83 NASDAQ:-77.96/-115.75). The most significant signals are coming from the Open Insider Buy/Sell Ratio (page 9) showing insiders buying their stock at levels not seen since the market lows of 9/2015 and 1/2016 at a very bullish 137.7. As well, the opposite indicator of the detrended Rydex Ratio (contrary indicator page 8) shows the leveraged ETF traders loaded up to their eyeballs on leveraged short ETFs at -1.62. This is a level, similar to the OI, not experienced since nearing the market lows of 9/2015 and 3/2016. Seasonality also offers a ray of hope. The November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation remains below implied fair value with the forward 12 month earnings estimates for the SPX via Bloomberg at $172.37 leaving the forward 12 month p/e for the SPX at 15.9 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.29%.
- In conclusion, while the data suggests a buying opportunity is unfolding, the charts and market breadth have yet to send signals that would confirm. Until that happens, we are forced to keep our near term “neutral/negative” outlook for the major equity indexes in place.
- SPX: 2,716/2,774
- DJI: 24,774/25,531
- NASDAQ 7,427/7,647
- NDX: 7,082/7,398
- DJT: 10,115/10,492
- MID: 1,836/1,880
- Russell: 1,508/1,596
- VALUA: 5,938/6,148