Data Remains Short Term Positive
Opinion: The indexes closed mostly lower yesterday with negative internals as volumes rose from the prior session. However, we are of the opinion that a number of encouraging signals were generated suggesting the probability that a near term bottom has been put in place. As well, the data remains largely positive for the short term. As such, we now believe the higher short term probability is for a test of the respective resistance levels listed below. However, the intermediate term remains a concern as all intermediate downtrends remain intact, market breadth has yet to show consistent strong signs of improvement and weak commodity prices continue to imply poor industrial demand.
- On the charts, most of the indexes closed lower yesterday. Yet there were a number of events that took place giving us encouragement for the near term. Over the past several months, the large-cap indexes have masked the much weaker underlying breadth in the markets. It was a different story yesterday as the RUT (page 4) actually closed higher on the day while all of the indexes closed well off of their deep intraday lows with the exception of the DJI (page 2). In fact, while NYSE breadth was terrible, NASDAQ breadth was almost dead even and notably better. Also, while the DJI and SPX (page 2) broke support, the rest of the indexes managed to hold.
- We find this quite interesting as it is the complete opposite action from that having been seen over the past several months. As well, the bulk of the indexes recovering from heavy losses on very heavy volume implies a possible washout of selling pressure. The VALUA (page 5), in fact, appears to put in a “hammer bottom”. So although all of the near and intermediate downtrends remain intact, we believe a number of positive near term signals were generated yesterday.
- The data remains supportive as well. The McClellan OB/OS Oscillators are still very oversold (VALUA:-113.19 NYSE:-133.04 NASDAQ:-94.26) while the OEX Put/Call Ratio (smart money) shows the pros heavy in calls at a very bullish 0.48. Also the new Investors Intelligence Bear/Bull Ratio (contrary indicator) shows advisors quite nervous with bears outnumbering bulls at 36.1/28.6.
- In conclusion, we remain positive for the near term but cautious for the more intermediate 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: 1,822/1921
DJI: 15,383/16,340
COMPQX; 4,418/4,644
DJT: 6,580/7,022
MID: 1,230/1,315
RUT: 982/1,052
VALUA: 3,803/4,070