Some Sentiment Moderates
Opinion
While more support levels were broken on the charts yesterday as volumes swelled, we now are of the opinion that the equity indexes may have put in short term bottoms as a result of yesterday’s trading. This does not mean that the more intermediate term has turned positive but rather that the recent plunge in the indexes may be spent for the near term with some short term upside to resistance.
- On the charts, most of the indexes closed lower yesterday as volumes swelled well above average. We tend to view the volume surge as a possible “tossing in the towel” by investors. While support levels were broken on the SPX (page 2) and DJI (page 2), both tested their next support levels while closing well off of their intraday lows. In fact, we suspect the SPX may have put in a hammer bottom.
- The COMPQX (page 3), DJT (page 3), MID (page 4) and RUT (page 4) all tested supports successfully while the DJT and RUT actually closed higher on the day. We suspect the DJT and MID may have put in hammer bottoms as well. Meanwhile, the NASDAQ actually had slightly positive internals adding to a more positive tone. Given the negative futures this morning, a test of the lows may be possible but we are inclined to believe said short term lows will hold at this point.
- On the data, investor sentiment has moderated to some degree from its prior overly bullish opinion as the new Investors Intelligence Bear/Bull Ratio (contrary indicator) reading has turned neutral with the number of bulls dropping notably to 17.3/37.8. The Rydex Ratio (contrary indicator) remains bearish at 41.0 but well off of its higher readings.
- Of some concern is insiders have yet to be drawn into a buying mode as the Gambill Insider Buy/Sell Ratio remains neutral at 14.1. The WST Ratio and its Composite are bullish at 35.3 and 97.3 with the NYSE McClellan OB/OS Oscillators oversold (-57.37/-89.99) along with the 21 day NASDAQ (-84.93). The NASDAQ 1 day is a neutral -28.36.
- In conclusion, while the intermediate term remains questionable, the charts are suggesting there may be some short term respite from the recent decline with possible tests of resistance over the near term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.93% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $129.05 versus the 10 Year Treasury yield of 2.09%.
- S&P 500: 1,826/1,906
- Dow 30: 15,874/16,500
- NASDAQ Composite: 4,145/4,465
- Dow Jones Transportation: 7,695/8,063
- S&P Midcap 400: 1,267/1,340
- Russell 2000: 1,039/1,099