New Support Levels Tested
Opinion: Most of the indexes closed lower yesterday with the exception of the DJT. Multiple support levels were tested successfully with the indexes avoiding what appeared to be another nasty day at the beginning of the session. While the charts held support, internals remained very negative as advance decline lines continue to weaken. However, there are a few indicators that have turned positive causing us to shift our short term outlook to neutral from neutral/negative. The intermediate term outlook remains cautious.
- All of the indexes closed lower yesterday with negative internals with the exception of the DJT (page 3). That index closed higher with a good pickup in volume as its relative strength to the SPX continues to improve. As noted several times in the past, we regard the DJT as the leading index in terms of general market direction. While the other indexes have yet to show signs of positive reversal, the DJT does offer some degree of hope. However, that may require a good deal of patience. The DJI (page 2), NASDAQ (page 3), RUT (page 4) and VALUA (page 5) all tested their respective support levels. As well, the stochastic readings for the NASDAQ and RUT are now well into oversold territory.
- Yet the massive fly in the proverbial ointment is the continued deterioration of market breadth. Both the NASDAQ and All Exchange A/D lines made lower lows and remain in downtrends. We strongly believe that a significant degree of improvement is required there in order to become more sanguine regarding the market’s more intermediate term prospects.
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- The data remains largely neutral including the 1 day McClellan OB/OS Oscillators (VALUA:-42.24 NYSE:-42.56 NASDAQ:-46.56). The 21 day levels are still oversold. Positive signals are coming from the OEX Put/Call Ratio (smart money) at 0.41 showing the pros to be very heavily weighted in calls and expecting near term strength. As well, the Gambill Insider Buy/Sell Ratio has shifted back to bullish at 48.2 as insiders have actively reentered the buy side of the market. Also, IBES forward 12 month earnings estimates for the SPX have been raised from $123.13 to $123.91.
- In conclusion, the near term outlook has improved slightly to neutral while we remain cautious for the more intermediate term based on the charts and data.
- Forward 12 month earnings estimates for the SPX from IBES is $123.91 leaving a 6.69% forward earnings yield with a 14.9 forward multiple.
SPX: 1,820/1,907
DJI: 15,975/16,592
COMPQX; 4,211/4,537
DJT: 6,790/7,022
MID: 1,216/1,290
RUT: 956/1,019
VALUA: 3,827/4,070