Sentiment Data Turns Positive
The indexes closed mixed Tuesday with negative internals on the NYSE while the NASDAQ internals were mixed once again. The charts saw two violations of support while the data has turned more positive, particularly those pertaining to investor sentiment. We remain of the opinion that Monday’s action may have marked a correction low but, given the state of the charts and data, we are not yet in a position to alter our current near term “neutral” outlook for the major equity indexes.
- On the charts, the indexes closed mixed yesterday with generally negative internals. The COMPQX (page 3), NDX (page 3) and MID (page 4) closed higher on the day as the balance declined. The DJT (page 4) and VALUA (page 5) both closed below their near term support levels, turning their trends to negative. However, neither violated their intraday lows of the previous session that we view as “hammer bottom” formations suggesting a correction low may have been achieved Monday. The rest of the trends remain neutral. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ are negative and below their 50 DMAs. Yet we would note the bulk of the indexes are oversold on their stochastic readings but have not yet registered bullish crossovers.
- The data finds all of the McClellan OB/OS Oscillator 21 day readings oversold with the 1 day levels still neutral (All Exchange:-38.12/-69.72 NYSE:-44.29/-66.87 NASDAQ:-34.48/-72.44). Some encouragement is coming from the sentiment readings that find the crowd (contrary indicators) long puts on the Total P/C at 0.97 and the leveraged ETF traders highly leveraged short via the detrended Rydex Ratio (page 8) at -1.01 and the AAII Bear/Bull Ratio at 38.67/31.67. In contrast, insiders are very actively buying weakness with a bullish 101.3 Open Insider Buy/Sell Ratio and the pros very long calls with a 0.51 OEX P/C. Valuation still seems to be quite appealing as it is well below fair value, assuming current estimates hold, with the forward 12 month earnings estimates for the SPX via Bloomberg of $170.52, leaving the forward 12 month p/e for the SPX at 15.5 versus the “rule of 20” implied fair value of a 17.1 multiple. The “earnings yield” stands at 6.47%. Seasonality remains encouraging has 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.