Seasonality Offers Some Hope
The bulk of the indexes closed lower Monday with negative internals on the NSYE while NASDAQ internals were mixed. Volumes declined from the prior session on both exchanges. The charts saw some further deterioration as some support levels were violated while breadth weakened as well. The data continues to send some encouragement but we have to admit that there has been no action on price and market breadth that are the ultimate determinants for the market indexes. As such, we are forced to change our outlook from “neutral/positive” to “neutral/negative”.
- On the charts, the COMPQX (page 3) and NDX (page 3) managed to post gains yesterday as the rest declined. The NYSE saw negative internals while the NASDDAQ’s were mixed with negative breadth but positive up/down volumes. The technical picture weakened as the SPX (page 2) and MID (page 4) closed below support. As such, the short term trends are now negative on the SPX, DJT (page 4), MID and VALUA (page 5). The rest are neutral. Market breadth, which was our concern prior to the correction, turned short term negative again on the All Exchange and NASDAQ. The NYSE’s is struggling to stay neutral. We have been focusing on data that is at levels coincident with market bottoms on a historical basis. However, the charts are the ultimate arbitrator and have yet to show signs of a reversal.
- The data finds all of the McClellan OB/OS Oscillators oversold (All Exchange:-58.27/-102.92 NYSE:-51.0/-95.78 NASDAQ:-66.06/111.45) with some at extreme levels. The Put/Call Ratios find the pros long calls with a bullish 0.56 OEX P/C while the crowd is long puts with a bullish 1.07 Total P/C. The % of SPX stocks trading above their 50 DMAs has slipped to 19.6%, near levels seen at the market lows of January and March of this year. Seasonality does offer a ray of hope. The November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation remains below implied fair value with the forward 12-month earnings estimates for the SPX via Bloomberg at $172.35 leaving the forward 12-month p/e for the SPX at 16.0 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.25%.
- In conclusion, while the data and seasonality offer hope, the charts and market breadth have yet to send signals that the current correction has been completed. It can change quickly but said signs have yet to appear. Thus we are forced to change our short term outlook to “neutral/negative” from “neutral/positive”.
- SPX: 2,750/2,809
- DJI: 25,307/25,860
- NASDAQ: 7,427/7,647
- NDX: 7,082/7,398
- DJT: 10,367/10,752
- MID: 1,853/1,918
- Russell: 1,540/1,640
- VALUA: 6,050/6,239