RUT Closes Below 150 DMA
Opinion: Yesterday’s bounce in the large caps that was implied by the oversold McClellan OB/OS Oscillators resulted in new highs for the DJI and DJT. However, the broader underlying performance was not nearly as good as breadth continued to weaken while volumes are still suggestive of distribution, in our opinion. When combined with current sentiment data, we continue to be led to the conclusion that the markets are not as healthy as they appear and some corrective action may be expected.
- On the charts, the headlines will note the DJI (page 2) and DJT (page 3) made new closing highs yesterday. However, while the COMPQX (page 3) closed higher, it closed near its lows of the day with negative internals as declines outnumbered advances and down volume surpassed up volume as overall volume increased. This continued internal weakening remains a concern.
- Meanwhile, the RUT (page 4) closed lower and marginally below its 150 DMA while the MID also dropped closing directly on near term support. The futures this morning suggest that support will likely fail. Further signs of deterioration are coming from the All Exchange A/D that is making a lower low while the NASDAQ A/D is also making a lower low and is below both its 50 and 200 DMAs. Our net take on this is money is chasing fewer stocks, mostly large caps, while volumes suggest overall distribution. We believe the DJI and DJT are masking a deteriorating market.
- On the data, most of the McClellan OB/OS Oscillators are neutral with only the NASDAQ 1 day oversold at -65.25. Sentiment remains a problem. The new Investors Intelligence Bear/Bull Ratio (contrary indicator) still shows the crowd overly bullish at 15.1/56.6. The Equity Put/Call Ratio (contrary indicator) sends the same message at 0.5 with the detrended Rydex Ratio (contrary indicator) showing the leveraged ETF traders leveraged long at 1.4. Insiders remain sellers with a 6.1 Gambill Insider Buy/Sell Ratio while the pros are long puts with a 15 DMA of 2.38 on the OEX Put/Call Ratio (smart money).
- In conclusion, when we look behind the curtain, we don’t like what we see for the near term market prospects.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.37 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.14 versus the 10 Year Treasury yield of 2.54%.
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