Data Suggests BounceOpinion
All of the indexes closed lower yesterday with broadly negative internals on the NYSE and NASDAQ for the second day in a row. Volumes rose from the prior session on both exchanges, creating a second day of distribution. Some weakening was seen on the charts in terms of some near term uptrends being violated. However, the data, as a result of the two day decline, is now suggesting a bounce for the indexes, offering some short term relief. Given the shift in chart trends described below, a more neutral outlook for the major indexes now appears appropriate versus our prior opinion that the near term uptrends of the indexes should be respected.
- On the charts, all of the indexes closed lower yesterday with broadly negative internals on the NYSE and NASDAQ as volumes rose. Some weakening in the charts appeared on the SPX (page 2), COMPQX (page 3), NDX (page 3) and VALUA (page 5) as they closed below their respective short term uptrend lines, turning the trends to neutral. Bearish stochastic crossovers were signaled on the SPX, DJI (page 2), MID (page 4) and VALUA. However, we would note that no near term support levels were violated on any of the indexes. We regard support levels as generally more significant than near term trends although trends are important. Deterioration was also seen on the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ as all turned short term negative but remain above their 50 DMAs.
- The data, on the other hand, is suggesting some near term relief from recent weakness may be at hand. All of the 1 day McClellan OB/OS Oscillators are oversold, particularly that of the NYSE, as the 21 day levels are neutral (All Exchange-78.55/+7.04 NYSE:-99.46/-0.10 NASDAQ:-56.45/+18.11). The Total and OEX Put/Call Ratios are bullish as well at 0.95 and 0.49 respectively with the Equity Put/Call Ratio a neutral 0.61. Forward valuation of the SPX dropped to an 18.3 forward multiple as forward consensus estimates via Bloomberg rose to $154.61 while the SPX declined.
- In conclusion, the charts are suggesting a more neutral outlook for the major indexes although the data implies a bounce. In our opinion, whether or not the markets can lift with good breadth and volume over the next few sessions may tell whether or not recent weakness has been a minor correction within an ongoing uptrend or something of more significance.