Data Turns Slightly PositiveOpinion
Our next comment will be Monday, September 19. All of the indexes closed notably lower Friday with broadly negative internals as volumes swelled on both exchanges. Several negative technical events occurred on the charts while the data has shifted to a slightly more positive tone. However, in spite of the data suggesting new support levels have a probability of holding, the chart deterioration is turning our near term outlook for the indexes from “neutral/positive” to “neutral”. And while forward valuation of the SPX has moderated, we are keeping our intermediate term view at “neutral” as well.
- On the charts, all of the indexes suffered notable losses Friday with very negative internals, heavy volume as all closed at or near their intraday lows. All of the indexes closed below near term support and their short term uptrend lines while the RUT (page 4) was the only one managing to stay above its 50 DMA. Given the breaks in trend, the charts have now taken on a neutral pattern at this stage, in our opinion. One reason for not being more negative from a technical viewpoint is due to the % of SPX stocks trading above their 50 DMAs (page 9). As seen on the chart, notable spikes down in the %, as seen on Friday, have frequently been associated with near term bottoms for the SPX.
- The data is also is tempering our negativity as both the All Exchange and NYSE McClellan OB/OS Oscillators are now oversold at -59.0 and -71.0 respectively while the WST Ratio/Composite is on a “bull alert” signal at 15.27/73.1, suggesting the lion’s share of the damage may already have transpired. The OEX Put/Call Ratio (smart money) has turned a neutral. 1.29 from its prior bearish readings while the Total and Equity Put/call Ratios (contrary indicators) find the crowd very long puts at 1.18 and 0.78 respectively. The Gambill Insider Buy/Sell Ratio remains neutral at 10.1.
- In conclusion, while the markets put the “fear of God” in investors Friday, the evidence discussed above is short of turning us negative on the markets. The implications are, in our opinion, that the markets may have seen the bulk of the short term damage already and could be moving sideways over the near term. The drop in the SPX, combined with the hike in estimates discussed Friday, has lowered its valuation to a 16.6x forward multiple. However, we remain “neutral” for the intermediate term due to said valuation.