Data Suggests Bounce
Opinion: All of the indexes closed lower yesterday with broadly negative internals as volumes declined from the prior session but remained high on an average comparison basis. All closed at or near their intraday lows. All of the recently adjusted support levels were violated by a sizable margin as selling continued from the prior session. Advance/decline lines for some of the indexes have turned negative as well. However, the data is now suggesting some bounce potential exists over the near term. As such, we are keeping our near term outlook at “neutral” due to the implied bounce. The critical issue going forward will be whether or not the indexes can violate resistance levels on strong volume.
- On the charts (pages 2-5), all of the indexes slid notably further yesterday resulting in all of the gains from early March being wiped out over the past 2 sessions. Internals remained very negative while all of the newly adjusted support levels were violated. The SPX (page 2) and DJI (page 2) closed below their 200 DMAs as well. Only the DJT (page 3) has seen its stochastic level dip into oversold territory at this point. As well, the advance/decline lines for the All Exchange and NASDAQ have turned negative and are below their 50 DMAs. So the charts are in serious need of repair.
- The data, however, is suggesting some near term relief may be at hand. All of the 1 day McClellan OB/OS Oscillators are now oversold (All Exchange:-83.09 NYSE:-79.12 NASDAQ:-89.47). The WST Ratio and its Composite are both bullish at 27.7 and 94.0 while the OEX Put/Call Ratio (smart money) shows the pros now weighted in calls at 0.73 as they bet of some form of near term relief. So the data is offering some encouragement.
- In conclusion, we are maintaining our near term “neutral” outlook for the indexes as the data is implying some possible lift. However, any expectations beyond that for further upside are too speculative, in our opinion, due to the significant amount of damage on the charts and reversal of the prior positive breadth characteristics. Our discipline will now require violations of resistance with strong volume and breadth to become more positive.
- Forward 12 month earnings estimates for the SPX from IBES of $125.78 leave a 6.29% forward earnings yield on a 15.9 forward multiple.
SPX: 1,993/2,042
DJI: 17,070/17,518
COMPQX; 4,546/4,714
DJT: 7,048/7,533
MID: 1,407/1,452
RUT: 1,079/1,142
VALUA: 4,394/4,546