Short-Term Outlook Turns “Neutral/Negative”Opinion
All of the indexes closed lower Friday with negative internals as volumes declined from the prior session. All closed at or near their intraday lows with multiple support levels being violated. Internal breadth has weakened as well. While the data continues to imply some bounce potential for the markets, it is our opinion that the chart action should not be ignored. Thus our near term outlook is turning “neutral/negative” from our prior “neutral” view. We remain “neutral” for the more intermediate term.
- On the charts, all of the indexes declined with poor internals. The charts saw multiple fractures. The SPX (page 2), DJI (page 2), DJT (page 3), MID (page 4) and RUT (page 4) all closed below their respective near term support levels adjusted below. The SPX, DJI, RUT and VALUA (page 5) closed below their 50 DMAs. All closed at or near their intraday lows. Also, the A/D lines for the All Exchange and NASDAQ have turned near term negative noting a weakening of the internal breadth. Resistance levels will now likely be required to be overcome with an increase in trading volume to become more positive for the short term.
- The data remains encouraging as all of the McClellan 1 day OB/OS Oscillators are oversold (All Exchange:-72.16 NYSE:-69.08 NASDAQ:-79.92). The crowd remains fearful and very long puts as seen in the Total and Equity Put/Call Ratios (contrary indicators) at 1.15 and 0.84 respectively. In contrast, the pros remain long calls with a bullish 0.66 OEX Put/Call Ratio (smart money).
- In conclusion, although the data suggests the potential for some near term strength, the deterioration in the charts noted above and weakening market breadth carry the heavier weight of the message, thus causing our near term view to move to “neutral/negative”.
- For the intermediate term, we remain “neutral”, although valuation has moderated to some degree, due to waning breadth.