Sentiment Data Remains Positive
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose on the NYSE and declined on the NASDAQ. All closed near their intraday lows in what we are inclined to view as a normal digestion of the recent rally gains. The futures are quite negative this morning but we are inclined to buy weakness as the sentiment data remains quite positive and valuations have become more reasonable. Both our near and intermediate term outlooks are neutral at this point in time.
- On the charts, all of the indexes closed lower yesterday with no important chart signals being registered. Breadth was negative in what we believe to be a normal digestion of the notable rally from the prior three sessions. We became less positive on the charts yesterday as near term resistance levels were close at hand. However, if the futures maintain their current status, a test of support may be seen today of which we would be prone to be buyers versus sellers. We suspect the charts may be working out a bottoming period that may take several sessions, thus our near term neutral outlook.
- On the data, the McClellan OB/OS Oscillators are unchanged (NYSE:+22.23/-48.49 NASDAQ:+33.31/-59.89) with only the NASDAQ 21 day oversold as the rest remain neutral. However, the sentiment data is extremely positive as the crowd has become quite terrified as insiders are gobbling up their shares at levels not seen in years. The Gambill Insider Buy/Sell Ratio is very bullish at 115.4, a level of buying activity not seen since Q3 2011 and near that market’s lows.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
- In contrast, the Rydex Ratio (contrary indicator) has slid from a very cautionary 70 at the recent highs to 36.0 as leveraged ETF traders bail out of their overly leveraged long positions. The ISEE Put/Call Ratio (contrarian/international) at -22.2 is showing those options players at peak levels of put ownership also seen near market lows. The Total Put/Call Ratio (contrary indicator) shows the crowd very heavy in puts as well at 1.19.
- In conclusion, although the markets may take a hit this morning, sentiment data is suggesting buying, not selling, is the wiser choice while the charts may see a test of their respective support levels.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.41% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.35 versus the 10 Year Treasury yield of 2.20%.