Last Note Until 4/21
Opinion
Our next Morning Note will appear on 4/21. Yesterday’s decline did cause some damage within the charts. However, almost all of the indexes managed to hold their respective support levels in spite of the selling intensity. As such, they remain within their respective trading boundaries. The data did respond on several levels shifting to a more positive signal in general. So, based on the charts and data, although the futures suggest a break of support on the open, we suspect the indexes may be able to close back within their current ranges by the close leaving the sideways action intact.
· On the charts (pages 2-4), we have noted all but the RUT actually held their support levels yesterday with the exception of the RUT whose support is now adjusted to 1,111. Holding support was the most critical issue, in our opinion. The damage came in the form of the SPX closing below its 50 DMA, the NASDAQ closing below its long term uptrend line for a second time and the MID closing below both its 50 DMA and uptrend line. Both the DJI and DJT held their ground as overall volume rose with negative breadth on the decline. So although there was damage, holding support may be the trump card.
· On the data, the following bullish signals were the NASDAQ 1 and 21 day McClellan OB/OS Oscillators becoming oversold at -63.75 and -49.79. Both of the NYSE OB/OS levels are neutral. The WST Ratio and its Composite are both bullish at 16.9 and 79.3, very positive levels. The Total Put/Call Ratio (contrary indicator) saw significant crowd put buying at 1.03 along with the ISEE Sentiment index at a very low -18.4. They suggest a shift in crowd sentiment that is echoed by the new AAII Bear/Bull Ratio (contrary indicator) that now shows bears outnumbering bulls at 34.11/28..48. The data is not totally positive but, in our opinion, has shifted enough to suggest some upside bias.
· So, although it may be “wishful thinking” on our part, we suspect the implied opening weakness this morning may be overcome by the markets’ close leaving the sideways trend intact.
· For the longer term, we remain bullish on equities as they remain undervalued with a 6.45% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $118.30 versus the 10 Year Treasury yield of 2.63%.
- SPX: 1,829/1,875
- DJI: 16,105/16,491
- NASDAQ: 4,050/4,248
- DJT: 7,407/7,590
- MID: 1,336/1,370
- RUT: 1,111/1,173