Stochastic Levels Reach Oversold Territory
Opinion: All of the indexes closed lower yesterday and at or near their intraday lows, giving up all of the gains seen earlier in the session. Interestingly, internals were positive on the NYSE and NASDAQ as volumes declined from the prior session. No technical events of import were registered as all of the short term downtrends remain intact. The data remains mixed and inconclusive regarding near term market projections. As such, our near term outlook remains “neutral/negative”. For the intermediate term, we remain “neutral” as generally positive breadth for that time frame is being offset by valuation remaining near historically high levels.
- On the charts, all of the indexes closed lower as last hour selling erased the gains seen earlier in the session. All closed at or near their intraday lows while internals were positive on both exchanges. No technical events were registered as no support levels or DMAs saw further damage. However, all of the current short term downtrends remain intact. The stochastic levels did finally reach oversold conditions across the board as speculated in one of our recent comments. However, although said oversold conditions now exist, they can stay at such levels for extended periods. Thus they do not become actionable, in our opinion, until “bullish stochastic crossovers” are registered.
- The data remains inconclusive with a lack of dominant signals in either direction. All of the McClellan 1 day OB/OS Oscillators remain oversold (All Exchange:-55.42 NYSE:-61.7 NASDAQ:-52.47) although not extremely so. The rest of the data remains largely neutral including the WST Composite (102.5), OEX Put/Call Ratio (smart money) at 1.39 and Gambill Insider Buy/Sell Ratio of 9.4. The Gambill level has yet to see its needle move in response to recent market weakness, suggesting insiders have yet to be motivated to purchase their own stock. As such, the data overview is lacking in directional probabilities.
- In conclusion, both the charts and data have yet to send signals suggesting the recent correction has exhausted itself. We remain near term “neutral/negative”. For the intermediate term, although breadth has weakened of late, it remains generally positive. However that is being counterbalanced by valuation remaining near historic highs. Thus we stay “neutral” in our outlook for that timeframe.
- Forward 12 month earnings estimates for the SPX from IBES of $125.82 leave a 6.08% forward earnings yield on a 16.5 forward multiple.
SPX: 2,066/2,104
DJI: 17,650/18,058
COMPQX; 4,780/4,969
DJT: 7,523/7,771
MID: 1,452/1,498
RUT: 1,133/1,201
VALUA: 4,539/4,694