Data Suggests Bounce

Remaining Intermediate Term Cautious

Opinion

All of the indexes closed lower again yesterday with negative internals as volumes rose on the NYSE but declined on the NASDAQ. Multiple support levels were violated along with some other chart breaks. However, the data is now flashing several green lights suggesting a bounce, more so than yesterday’s readings. We remain of the opinion that the charts as well as some other metrics are suggestive of rallies being best viewed as selling opportunities as we remain cautious for the intermediate term.

• All of the indexes closed lower with negative internals yesterday with the bulk closing at or near their intraday lows. The one exception was the DJT (page 3) that closed near its highs and managed to barely hold on to support. Both the SPX (page 2) and DJI (page 2) closed below support while the COMPQX (page 3) closed below support, its 50 DMA and its intermediate term uptrend line. Both the MID (page 4) and RUT (page 4) closed below support as well with the MID also closing below its 200 DMA. However, the DJI, MID and RUT are oversold on their stochastic readings. So as far as the charts are concerned, the picture remains largely ugly.

• The data is sending another bounce message but more intensely than before. All of the McClellan OB/OS Oscillator levels are oversold with some at levels not seen for quite some time. (NYSE:-86.34/-52.44 NASDAQ:-90.82/-71.51). The WST Ratio and its Composite remain bullish at 33.9 and 96.3 while the Total & Equity Put/Call Ratios (contrary indicators) are bullish as the crowd has increased its put buying to 1.22 and .74. The OEX Put/Call Ratio (smart money) remains neutral at 1.17. It’s not surprising to see some bounce signals being generated on the data given the steepness of the recent declines.

• In conclusion, the data is suggesting the probability of a near term bounce. However, the chart damage has been significant suggesting that any rallies to resistance may be best viewed as selling opportunities. Leverage, valuation and very poor market breadth add to our intermediate term concerns as well.

• For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.02% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.5 versus the 10-year Treasury yield of 2.23%.
• S&P 500: 2,058/2,102
• DJI: 17,376/17/842
• NASDAQ Composite: 5,020/5,163
• Dow Jones Transportation: 8,127/8,069
• S&P Midcap 400: 1,454/1,505
• Russell 2000: 1,210/1,263