Downtrends Remain Intact
Opinion
Only one of the major indexes, the DJT, responded positively to the very oversold conditions noted yesterday. While breadth was positive and volumes rose, most of the indexes were only able to achieve tepid bounces at best. As such, the potential for an oversold bounce has diminished, in our opinion, bringing us back to a neutral/negative short term outlook for the major indexes.
- On the charts, only the DJT (page 3) was able to achieve a reasonable advance given the heavy oversold conditions from the prior session. The DJI (page 2) actually closed lower on the day while the rest of the indexes saw only minor gains while closing near their lows of the day. The fact that breadth was positive while volumes rose suggests to us that a great deal of effort was expended for minimal reward, outside of the DJT. As such, with the short term downtrends intact, the charts remain negative at this point.
- Looking at the data, the McClellan OB/OS Oscillators, while still mostly oversold, gave up a great deal of their potential impact with little result as “very oversold” conditions have slid to mostly “oversold” (NYSE:-66.5/-79.35 NASDAQ:-48.63/-85.82) while the NASADQ 1 day is now a neutral -48.63. A lot of fuel was spent with little benefit.
- Other data is positive with a bullish WST Ratio and Composite of 16.0 and 72.7 while the “crowd” remains nervous via the Total and Equity Put/Call Ratios (contrary indicators) showing them long puts at 1.05 and .78. Yet we would note similar conditions existed for these points yesterday as well without a notable market response. The OEX Put/Call Ratio (smart money) continues to show the pros expecting weakness at 1.49 while the Gambill Insider Buy/Sell Ratio fails to show aggressive insider buying of the weakness at a neutral13.8.
- In conclusion, the inability of the of the indexes, with the exception of the DJT, to respond favorably to very oversold conditions and other bullish data suggests the downtrends are likely to continue over the near term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.87% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $129.05 versus the 10 Year Treasury yield of 2.21%.
- S&P 500: 1,873/1,925
- Dow 30: 16,321/16,729
- NASDAQ: 4,145/4,465
- Dow Jones Transportation: 7,582/8,063
- S&P Midcap 400: 1,267/1,340
- Russell 2000: 1,039/1,099