Data Now Neutral
Opinion
All of the indexes closed higher yesterday with broadly positive internals as volumes rose from the prior session. All closed at or near their intraday highs implying active buying interest. The data from 2 days ago that suggested bounce potential has now turned largely neutral, taking some punch out of the near term prospects, in our opinion. While we believe some tests of resistance and downtrends remain possible, we would expect the short term pace to slow. And in spite of psychology, valuation and lower leverage improving intermediate term prospects, until breadth improves with violations of resistance/downtrends, we remain neutral for that time-frame.
- On the charts (pages 2-4), all of the indexes closed higher yesterday with good breadth and strong volumes. However, no violations of resistance or downtrends occurred. The stochastic levels remain oversold but have yet to trigger bullish reversal signals. So although the day was positive, it was not conclusive from a technical view. We suspect we may see tests of current resistance levels and or downtrends over the near term. However, the A/D lines for the NYSE and NASDAQ continue in their downtrends and need improvement to become more encouraging.
- The data that had implied a bounce two days ago has now turned largely neutral including the McClellan OB/OS Oscillators (NYSE:-14.93/-31.3 NASDAQ:-29.08/-42.86). The OEX Put/Call Ratio (smart money) has turned neutral as well at 1.13 while the Total Put/Call Ratio has slipped from a very bullish reading to a neutral .84. Some encouragement is coming from the Gambill Insider Buy/Sell Ratio as it has turned bullish again at 25.0 as insiders ramped up their buying during the last downturn. In contrast, the Investors Intelligence Bear/Bull Ratio (contrary indicator) shows advisors have grown more bearish at 35.1/24.7, a positive signal.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
- In conclusion, we suspect some further but slower progress for the indexes over the near term as stochastic levels remain oversold but data has moderated from its prior bullish signals. While we would like to be more enthusiastic for the intermediate term, we need to see A/D improvement to validate the bullish psychology levels.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.57% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.11 versus the 10-year Treasury yield of 2.06%.
- SPX: 1.872/1,950
- DJI: 16,000/16,473
- COMPQX; 4,581/4,776
- DJT: 7,665/8,058
- MID: 1,350/1,400
- RUT: 1,083/1,148