Downtrends Remain Intact
Opinion: All of the indexes closed lower Friday with broadly negative internals as volumes increased from the prior session. However, as sizable as the declines were, support levels held in almost every case with the exception of the COMPQX. We now find the data extremely oversold and suggesting a short term bounce may be at hand as seen in the futures this morning. However, the intermediate term remains a concern as market breadth remains extremely poor, intermediate downtrends remain in place, overhead supply will now be encountered during rally attempts and commodities remain in downtrends suggesting weak industrial demand.
- On the charts, all of the indexes closed notably lower with very poor internals on heavy trading volume Friday. The only positive in the action was that all but the COMPQX (page 3) were able to hold their respective support levels. Unfortunately, all of the short and intermediate downtrends remain intact as well. Also, the All Exchange Advance/Decline Line (page 6) made a lower low and remains in its downtrend.
- The data is the one area offering some hope of relief as all of the McClellan OB/OS Oscillators are very oversold (All Exchange:-112.1 NYSE:-118.05 NASDAQ:-109.41). The Total and Equity Put/Call Ratios (contrary indicators) still show the crowd at high levels of fear and heavy in puts at 1.52 and 1.14 respectively. However, the pros, measured by the OEX Put/Call Ratio (smart money) are heavy in puts as well at 1.73. Yet we would note that insider buying has continued to rise to very positive levels with a 44.2 Gambill Insider Buy/Sell Ratio. So as a whole, the data has several encouraging short term green lights flashing.
- In conclusion, the data suggests some near term bounce and relief. However, the state of the market’s breadth, intermediate term downtrends and weak commodity prices suggesting poor industrial demand keep the intermediate term in question. It will take, in our opinion, a significant change in breadth and volume overcoming now strong resistance levels to bring the intermediate term into a more positive light.
- Forward 12 month earnings estimates for the SPX from IBES are at $125.33 with a 6.67 earnings yield and a 15.0 forward multiple.
SPX: 1,872/1,950
DJI: 16,000/16,595
COMPQX; 4,418/4,711
DJT: 6,580/7,022
MID: 1,269/1,315
RUT: 982/1,052
VALUA: 3,803/4,070