Data Turns Less Negative
Opinion: All of the indexes closed lower yesterday with negative internals as volumes declined on the NYSE but rose on the NASDAQ from their prior session levels. All closed at or near their intraday lows. The charts saw further weakness as some support levels were violated while others gave more warning signals. However, the recent weakness has started to have a more positive influence on the data, lessening its cautionary message. Nonetheless, we remain near term “neutral/negative” until the charts begin to suggest otherwise. The intermediate term remains “neutral” as generally positive breadth is countered by lofty valuation.
- On the charts, all of the indexes closed lower with negative internals and at or near their intraday lows. Selling persisted into the close. Technical weakness was registered as the SPX (page 2) and COMPQX (page 3) both closed below their short term support levels. The DJI (page 2) and COMPQX closed below their 50 DMAs, while the DJT (page 3) closed below its short term uptrend line and 200 DMA. The MID (page 4) and VALUA (page 5) closed on support. We would also note the stochastic levels that flashed bearish crossovers recently have yet to reach oversold conditions. While it is not a given, the stochastic indicators usually become oversold, followed eventually by bullish crossovers, as they oscillate from one extreme to the other. As such, the stochastic readings imply some further weakness is likely.
- The data, however, is seeing its warning signs diminish. The 1 day McClellan OB/OS Oscillators are now in oversold territory (All Exchange:-58.12 NYSE:-62.52 NASDAQ:-57.63). However, these are not extreme readings. The WST Ratio and its Composite are bullish at 17.2 and 93.8 while the OEX Put/Call Ratio (smart money) finds the pros now only slightly weighted to puts at 1.4 as their bearish bets have lessened. The Gambill Insider Buy/Sell Ratio, however, has yet to see insiders buying weakness as it remains a neutral 9.4.
- In conclusion, although the data clouds are diminishing, the charts, along with the stochastic readings, have yet to suggest we are out of the woods for the near term. Thus we remain “neutral/negative” while the conflict of positive market breadth versus high valuation keep our intermediate term view at “neutral”.
- Forward 12 month earnings estimates for the SPX from IBES of $125.82 leave a 6.0% forward earnings yield on a 16.7 forward multiple.
SPX: 2,066/2,104
DJI: 17,650/18,058
COMPQX; 4,780/4,969
DJT: 7,638/7,950
MID: 1,482/1,530
RUT: 1,133/1,201
VALUA: 4,636/4,792