Forming A Short-Term Bottom?

Insiders Buying As SPX Estimates Rise

Opinion

All of the indexes closed higher yesterday with positive internals as volumes rose from the prior session. No technical signals were registered as all of the indexes remain below resistance and in current downtrends. However, in spite of the extremely negative futures this morning, the data and charts discussed below may be suggesting the possibility that the markets are trying to form a short term bottom. However, our intermediate term outlook remains cautionary due to poor market breadth, lack of sector leadership, continuing declines in commodities and valuation.

• On the charts, all of the indexes closed higher with positive internals as all closed near their intraday highs. However, the futures this morning imply all of those gains and more will be erased on the open. At present, they imply tests of current support levels. Given the state of the data discussed below, there is reason to believe these support levels have a reasonable chance of holding. Should that be the case, successful tests of support combined with current data may be part of the process of finding near term bottoms for the indexes at current supports. However, the intermediate term chart outlook implies a much tougher road ahead given overhanging supply and downtrends.

• Looking at the data, in spite of yesterday’s gains, the McClellan OB/OS Oscillators remain largely oversold (NYSE:-85.44/-20.45 NASDAQ:-78.49/-56.42). The All Exchange OB/OS is oversold on its 1 day as well at -80.97. In siders have returned to the buying table with the Gambill Insider Buy/Sell Ratio moving into bullish territory at 41.6 while the crowd remains fearful and long puts (contrary indicator) with a 1.02 Total Put/Call Ratio and .82 Equity Put/Call Ratio. The OEX Put/Call Ratio (smart money) shows the pros mildly bullish at 0.87. As well, IBES has just raised their forward 12 month earnings estimates for the SPX from $125.38 to $126.46.

• In conclusion, as emotions are reaching peak levels of fear that may overpower rational thought, we suspect there is enough evidence to imply a short term bottom may being forming in the markets over the next few days. However, the intermediate term remains a concern for multiple reasons as breadth has yet to turn positive, current downtrends remain intact, significant overhanging supply is now present due to the correction, and the FVALUA chart may have formed a head and shoulder top formation having negative longer term implications.
• 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

Forming A Short-Term Bottom?

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Written By: Guy S. Ortmann, CMT