Indexes Make Higher Intraday Lows
Opinion
We are now a bit more confident that the major equity indexes may have seen short term bottoms as a result of yesterday’s market action. While most of the short term downtrends remain intact, there is some evidence on the charts suggesting some near term upside remains while the data remains neutral/positive.
- On the charts, most notable, in our opinion, was the fact that given a very negative market opening, all of the major indexes made higher intraday lows from the prior session with several of them closing higher on the day with positive breadth and very heavy volumes. We believe that action supports our supposition that near term bottoms were made during the prior session.
- The DJT (page 3) closed back above its 200 DMA while the RUT (page 4) closed above its short term downtrend line after being the first of the indexes to roll over several weeks ago. While the SPX (page 2) and DJI (page 2) closed lower, they closed well above their lows of the day while the rest of the indexes posted gains. As such, we believe the charts have some further near term upside.
- However, as the bulk of them remain in near term downtrends and all remain below resistance, much more progress needs to be made, in our opinion, to become more constructive for the intermediate term.
- Looking at the data, the 1 day McClellan OB/OS Oscillators are neutral for the NYSE (-14.5) and NASDAQ (+7.54) while the 21 days remain oversold at -79.13 and -78.86 respectively. As such, they are mildly positive. The OEX Put/Call Ratio (smart money) finds the pros mildly bullish for the short term at 0.85 while the “crowd” measured by the Total Put/Call Ratio (contrary indicator) finds them still very heavy in puts at 1.01. The Rydex Ratio (contrary indicator) also shows the leveraged ETF traders pulling back further from their overly bullish outlook to 38.2, a mildly bearish reading. We have yet to see insiders on the buy side as the Gambill Insider Buy/Sell Ratio remains a neutral 14.1.
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- In conclusion, while the data has a mildly positive tone, we believe the charts suggest some further near term upside that has yet to surpass important resistance levels.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.93% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $129.05 versus the 10 Year Treasury yield of 2.15%.
- S&P 500:1,826/1,906
- Dow 30:15,874/16,326
- NASDAQ Composite:4,145/4,465
- Dow Jones Transportation:7,695/8,063
- S&P Midcap 400:1,267/1,340
- Russell 2000: 1,039/1,099