MID Closes Below Support
Opinion: We apologize for the lateness of this morning’s comment due to a delay in data retrieval. Although the 1 day McClellan OB/OS Oscillators remain oversold, the underlying action of the markets continues to be a cause of concern to us as well as the current state of the sentiment data. As such, we would view the possible oversold bounce with some skepticism.
- On the charts, Friday saw another split market as the large caps posted gains while the MID and RUT closed lower on the day. In fact, the MID (page 4) followed in the steps of the RUT by closing below its support level that is now adjusted down to 1,391. Volumes were light across the board while the NASDAQ actually saw a negative advance/decline. We believe the broader market is seeing some internal deterioration as the NASDAQ A/D remains below its 200 DMA while its Net New Highs is making a lower low. The NYSE A/D line has taken on a downward slope suggesting weakening breadth while its Net New Highs has also made a lower low. As such, we have our doubts as to the current health of the equity indexes.
- The data shows the McClellan 1 day OB/OS oversold for the NYSE (-57.45) and NASDAQ (-59.77) suggesting some bounce potential. However, sentiment is still an issue for us as insiders remain sellers as noted by the Gambill Insider Buy/Sell Ratio at a low and bearish 6% with the pros still betting on weakness via the OEX Out/Call Ratio (smart money) at 2.3 as of 7/10. The “crowd” remains jubilant with a high and cautionary 1.55 detrended Rydex Ratio (contrary indicator) and heavy in calls via the Equity Put/Call Ratio (contrary indicator) at .54. Finally, the WST Ratio and its Composite remain cautionary at 66.4 and 158.1 respectively.
- In conclusion, we believe we are seeing some internal weakening of the markets initially showing up in the MID and RUT but impacting breadth in general while sentiment data is still suggesting that the ice is thinning under our feet.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.41 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.12 versus the 10 Year Treasury yield of 2.52%.