Data Still Suggesting Bounce
Opinion: The indexes closed mixed yesterday but internals remained very weak as decliners outweighed advancers by nearly 2:1. Volumes remained strong but lower than the prior session while remaining negative. There is nothing on the charts at this point showing a reversal of the recent slide is in price. An obvious one day reversal may be required in order for that to be registered. However, the data continues to suggest that the markets are extremely oversold and ripe for some relief. So in spite of the negative futures this morning, we remain of the opinion that some near term relief may be close at hand. For the intermediate term, we remain cautious as market breadth remains appalling, intermediate trends are negative, no sectors have emerged as leaders and commodity prices remain weak implying weak industrial demand.
- On the charts, the SPX (page 2) and DJI (page 2) closed higher yesterday as the rest declined. Internals were broadly negative as the markets continued their behavior of large cap stocks masking the underlying weakness of the broader markets. The MID (page 4) closed below support. At this stage, other than the stochastic levels remaining oversold, we have yet to see any chart action suggestive of the markets having put a near term bottom in place. All downtrends remain intact.
- The data continues to offer encouragement for the short term. All of the McClellan OB/OS Oscillators are very oversold (VALUA:-115.26 NYSE:-122.6 NASDAQ:-110.97). The 21 day levels are oversold as well. Most of the put/call Ratios are now neutral while the Gambill Insider Buy/Sell Ratio shows insiders having been active buyers of their stock of late at a bullish 44.2 while, in contrast, the Rydex Ratio (contrary indicator) shows the leveraged ETF traders are on the opposite side of the fence and actively selling as it has dropped from 70.0 to 38.5 over the past few weeks. The Insider/Rydex action is at levels seen near market lows.
- In conclusion, while the intermediate term remains a real concern, the data remains at levels suggesting some countertrend strength is likely at hand over the near term.
- Forward 12 month earnings estimates for the SPX from IBES are at $125.33 with a 6.66 earnings yield and a 15.0 forward multiple.
SPX: 1,872/1,950
DJI: 16,000/16,595
COMPQX; 4,418/4,711
DJT: 6,580/7,022
MID: 1,230/1,315
RUT: 982/1,052
VALUA: 3,803/4,070