Short-Term Downtrends Remain Intact
Opinion
All of the indexes closed lower yesterday with negative internals. Volumes rose on the NYSE but were noticeably lower on the NASDAQ. One of the indexes closed below near term support with all of the near term downtrends remaining intact on the charts. However, the data has become, in our opinion, quite encouraging and suggestive of some near term relief. Yet, until we see some violations of said downtrends, we are forced to remain “neutral” for the near term, in spite of the positive data. The intermediate term remains neutral due to a needed improvement in market breadth.
- On the charts, all of the indexes closed lower yesterday. Internals were negative on both exchanges but we would note what we see as a sizable decrease in volume on the NASDAQ that may be suggestive of some exhaustion of supply. The DJI (page 2) closed below support, adjusted below. The SPX (page 2), COMPQX (page 3) and RUT (page 4) all closed on support, leaving all of the short term downtrends intact. The SPX put a “hammer” formation in place implying a possible completion of the recent correction for that index. A violation of the downtrend and resistance with strong volume would be required to validate this signal.
- It is the data that is really getting our attention at this point. All of the 1 day McClellan OB/OS Oscillators are oversold (All Exchange:-85.55 NYSE:-100.56 NASDAQ:-69.77) with the NYSE 1 day extremely so. Psychology has turned very supportive as well. The Total and Equity Put/Call Ratios (contrary indicators) find the crowd very nervous and long puts at 1.37 and 0.8 while the pros measured by the OEX Put/Call Ratio (smart money) are long calls and expecting strength at 0.73. The new AAII Bear/Bull Ratio (contrary indicator) echoes the Total and Equity P/C signals with bears well outweighing bulls at 34.1/19.34 while the Gambill Insider Buy/Sell Ratio sees insiders continuing to increase their buying of recent market weakness to 29.6 and now officially in bullish territory. As such, the data is suggesting a positive shift in market tone.
- In conclusion, we remain near term “neutral”, in spite of the data, until violations of the current downtrends occur.
- For the intermediate term, we remain “neutral”, although valuation has moderated to some degree, due to a needed improvement in breadth.