More Supports Break
Opinion
All of the indexes closed broadly lower yesterday with very negative internals as volumes rose from the prior session. Multiple support levels were broken once again, leaving our expectations for some near term relief unfulfilled. The bulk of our data is unavailable this morning with a few exceptions. However, the data that is available is encouraging, leaving us still expectant of some possible near term strength. The violence of the recent decline has driven fear to bullish contrarian levels although any lift would be one within ongoing downtrends that keep us cautious for the intermediate term.
- On the charts, the indexes were hammered once again with all closing notably lower and near their intraday lows. Sellers remained in control with several support levels being broken (charts pages 2-5). In fact, the only index not breaking was the VALUA (page 5). So technically, there is nothing positive to say other than the stochastic levels remain very oversold. However, they have yet to yield bullish crossover signals.
- The bulk of the data we follow is unavailable this morning with only a few exceptions. Although the McClellan OB/OS Oscillators are not available, they were already oversold and, in our opinion, are now likely to be near extreme levels. The data we can report comes from two sources. The Investors Intelligence Bear/Bull Ratio (contrary indicator) at 35.7/28.6 is now near levels seen at last September’s lows as advisors are finally feeling the fear. Their notorious ability to be wrong at extremes helps turn market psychology data positive, as did the AAII Bear/Bull Ratio (contrary indicator) at the end of last week. Also, the WST Ratio and it’s Composite are quite bullish at 8.7 and 73.4, levels not seen in quite some time. As such, we believe the data continues to be encouraging.
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- In conclusion, the intensity of selling, in our opinion, has taken a lot of the air out of the market that had been a concern for us over the past several weeks. And although there is nothing on the charts at this point suggestive of a reversal, the data and degree of recent decline suggest to us that short term market risk has been notably decreased. Thus, we continue to be more positive than negative for the near term. The intermediate term, unfortunately, remains a concern as the VALUA suggests longer term downside targets. The core issues of poor breadth, lack of sector leadership, negative DJT action and sagging commodity prices remain problematic among others.
- SPX: 1,872/1,950
- DJI: 16,000/16,595
- NASDAQ; 4,506/4,711
- DJT: 6,580/7,022
- MID: 1,269/1,315
- Russell: 982/1,052
- VALUA: 3,803/4,070