Data Largely Neutral
Opinion: Yesterday’s gains on light volume did add a glimmer of hope to two of the indexes. However, the remainder rallied to resistance and failed. While the vast majority of the data is now neutral, based on the charts, we are not yet confident that the recent correction has fully run its course although some short term sideways action may be expected.
- On the charts, The COMPQX and RUT did see some technical improvement as the COMPQX (page 3) managed to close above its 50 DMA and short term resistance that is now adjusted to 4,423. However, volumes were quite light on the day putting a slight shadow over the action. The RUT (page 4) also closed above short term resistance that now becomes the 1,149 level. Yet the SPX, DJI, DJT and MID (pages 2-4) all rallied to resistance but failed to prevail while closing well off of their highs of the day. As such, we do not find the action technically compelling enough to change our view that the current correction may not be finished.
- We would also again note the MID (page 4) has yet to achieve its downside H&S count of 1,339, assuming our opinion that a H&S pattern has occurred in that index. In addition, the A/D lines for the All-Exchange, NYSE and NASDAQ remain in downtrends and below their 50 DMAs.
- The data is somewhat inconclusive at this point as it is neutral in almost every case including the McClellan OB/OS Oscillators (NYSE:+9.03/-21.52 NASDAQ:+36.99/-25.96). However, the prior warning signals have been largely abated. Yet, no buy signals are present.
- In conclusion, the current chart action in combination with the data suggests that some short term sideways action may be the higher probability while the correction may yet have a bit further to go before completion.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.53 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.40 versus the 10 Year Treasury yield of 2.42%.