Short Term Downtrends Remain Intact
Opinion: All of the indexes closed higher yesterday with positive internals as volumes declined. The short term bounce continued but none of the current downtrends or resistance levels were violated on the charts. The data remains ever so slightly positive, keeping the scales tilted in favor of some further near term list. However, we remain concerned for the intermediate term as, among other issues, advisor sentiment continues to suggest a high degree of complacency in the face of the recent market deterioration.
- On the charts, all of the indexes closed higher yesterday with positive internals but volumes declined. The advances were, in our opinion, quite tepid with the indexes closing in the middle of their intraday ranges. The RUT (page 4) closed back above its 50 DMA with the DJI (page 2) closing above its 200 DMA. Yet all of the indexes remain below their current short term downtrend lines and below resistance. As such, our expectation of a bit more bounce may not be sufficient to alter the current poor technical pictures. We would note all of the stochastic readings for the indexes are quite oversold, yet none have triggered bullish crossover signals at this time. They can stay oversold for extended periods.
- On the data, all of the McClellan OB/OS Oscillators are back to neutral (NYSE:-24.83/-45.09 NASDAQ:-30.16/-11.31) as the prior oversold conditions have been relieved. The options levels remain slightly positive with the Total Put/Call Ratio (contrary indicator) showing the crowd remaining nervous and long puts at 1.15 while the OEX Put/Call Ratio (smart money) at .95 shows the pros mildly bullish and slightly weighted in calls. An issue that remains a concern for the more intermediate term is the Investors Intelligence Bear/Bull Ratio (contrary indicator) that shows advisors unfazed by the recent correction at 15.4/49.5. There has been virtually no increase in bearish concerns on their part. We view their lack of response as a high degree of complacency on their part.
3rd party Ad. Not an offer or recommendation by Investing.com. See disclosure here or
remove ads
.
- So although there may be a bit more lift for the indexes over the near term, none of the technical charts or data has shifted sufficiently to alter our intermediate term caution.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.02% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.04 versus the 10 Year Treasury yield of 2.42%.
SPX: 2,053/2,091
DJI: 17,586/17,890
COMPQX: 4,935/5,049
DJT: 7,987/8,306
MID: 1,496/1,527
RUT: 1,242/1,273