Charts And Internals Continue To Deteriorate
Opinion
Some data yesterday suggested the potential for a bounce in the equity markets. It lasted for the first 60 minutes and then fell apart. Several more negative chart signals were generated as a result while internals weakened further. Volumes exceeded Friday’s levels suggesting institutional distribution continues. As our data is unavailable this morning, our reliance on the charts shows no signs at this point of a reversal of the current correction. To our knowledge, sentiment and valuation have yet to suggest a positive turn in the tide.
- On the charts, the only index that managed to close positive yesterday was the DJT (page 3). The rest of the indexes took a beating with broadly negative internals and heavy volume. Several negative events took place on the charts. The SPX (page 2) closed below support as well as its 50 DMA and intermediate term uptrend line. The DJI (page 2) closed below its 50 DMA as well while the COMPQX closed below support. The MID (page 4) closed below support and its 50 DMA while the RUT finally broke out of its sideways pattern to the downside as it broke below support and its 50 DMA. The overall action suggests to us that distribution continues while, at this point, no signs of a reversal are present.
- The data is largely unavailable this morning so oversold levels are unknown to us. The WST Ratio and its Composite remain on “bull alert” status as they did yesterday. However, that is not enough evidence to suggest strength, in our opinion. Over the next few days we should see some updated sentiment data that may shed some light. However, the last reported levels had yet to show any degree of fear required to turn the tide had appeared.
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- In conclusion, the charts remain cautionary suggesting prudence over the near term by our work.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.37% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.63 versus the U.S. 10-Year yield of 2.12%.
- S&P 500: 1,969/2,031
- Dow 30: 17,161/17,612
- NASDAQ: 4,564/4,688
- Dow Jones Transportation: 8,757/9,110
- S&P Midcap 400: 1,387/1,424
- Russell 2000: 1,119/1,167