Psychology Data Continues Cautious Message
Opinion: Most of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ. Volumes slipped on the NYSE and rose on the NASDAQ with most indexes closing near their intraday lows. The charts yielded a few more caution signals while the data finds investor psychology flashing yellow lights. Given the state of the charts and data, we are now inclined to shift our near term outlook from “neutral” to “neutral/negative.” The continued extended valuation of the SPX keeps our intermediate view “neutral”.
- On the charts, the indexes closed mostly lower with broadly negative internals. The DJI (page 2) and DJT (page 3) were the only two managing to post gains with the DJI actually making a new closing high. However, we believe the DJI is masking greater underlying weakness. The SPX (page 2) yielded a “bearish stochastic crossover” signal, following that event for the COMPQX (page 3) and VALUA (page 5) on Wednesday. The COMPQX (page 3) suffered the worst and closed below its 50 DMA while finishing on its near term support level. A look under the hood shows that energy and financials carried the day with the rest of the market sectors taking on water. We would also note the VIX (page 9) rose to 14.07 and above resistance, implying the likelihood of more volatility on the horizon, usually associated with weaker index prices.
- While the McClellan OB/OS Oscillators are mostly neutral (All Exchange: +5.48/+34.64 NYSE:-2.43/+34.01 NASDAQ:-6.4/+50.34) with only the NASDAQ 21-day now mildly overbought. The psychology data continues to send cautionary signals. The new AAII Bear/Bull Ratio (contrary indicator) still shows an excess of bullish sentiment within the “crowd” at 25.1/43.78 along with the Investors Intelligence Bear/Bull Ratio (contrary indicator) as advisors remain excessively bullish as well at 22.3/56.36. In contrast, the Gambill Insider Buy/Sell Ratio remains bearish at 8.5 as insiders are selling into market strength while the OEX Put/Call Ratio (smart money) finds the pros weighted in puts at 1.44.
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- In conclusion, some weakening within the chart structures combined with extended prices from the recent rally, weakening of internal breadth and the crowd being too enthusiastic cause us to shift our near term outlook from “neutral” to “neutral/negative”. Forward valuation of the SPX remaining near historic high levels keeps the intermediate term view “neutral”.