Charts Suffer Significant Damage
Opinion: The indexes closed notably lower yesterday with broadly negative internals and heavy trading volumes. Several significant chart violations occurred making the intermediate term, in our opinion, more questionable. However, for the very near term, the data is sending multiple signals suggestive of a bounce. So the very short term looks positive. Yet the technical damage suffered yesterday suggests to us that said bounce may well be one occurring within a weakening intermediate term trend.
- On the charts, the indexes closed markedly lower yesterday on very negative internals resulting in the following technical violations.
- The SPX (page 2) closed below support, its 150 DMA and well below its long term uptrend line.
- The DJI (page 2) also closed below support and violated its 200 DMA along with its long term uptrend line.
- The COMPQX (Page 3) closed below support, its 50 DMA and its intermediate term uptrend line.
- The DJT (page 3) closed below support and remains in its intermediate term downtrend.
- The MID (page 4) closed below support, its 50 DMA and its long term uptrend line.
- Finally, the RUT (page4) closed below its 50 DMA as well as support and both its intermediate and long term uptrend lines.
- All of the indexes closed at or very near their lows of the day. As such, we believe the intermediate term picture may well have suffered some important damage.
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- The data, in our opinion, shifted significantly for the short term suggesting a near term bounce for the indexes. The McClellan OB/OS Oscillators are mostly oversold (NYSE:-83.54/-54.52 NASDAQ:-69.37/-15.76) suggesting potential for an oversold bounce. The Equity and Total Put/Call Ratios (contrary indicators) show the crowd getting quite nervous and very long puts at 1.38 and .94 while the OEX Put/Call Ratio (smart money) shows the pros leaning mildly to the call side at .83 as they expect some relief. Both the WST Ratio and its Composite are positive as well at 27.7 and 86.1 respectively.
- In conclusion, the data suggests some near term relief. However, the technical picture has now become a greater concern, in our opinion, as multiple intermediate to long term uptrends have been sizably violated suggesting the bounce may be one within a negative trend.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.06% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.33 versus the 10 Year Treasury yield of 2.38%.
SPX: 2,053/2,091
DJI: 17,586/18,016
COMPQX: 4,935/5,100
DJT: 7,987/8,503
MID: 1,496/1,537
RUT: 1,242/1,273