Our last report was on the morning of December 14th. At the close of that session, all of the indexes closed below their respective support levels and proceeded to go into nearly vertical downtrends in our week long absence. The declines have been quite significant, as all will know, with no signs of relief during the six subsequent sessions. Upon our return, we find all of the charts in negative trends with no current signs of reversal. However, the data is extremely positive across the board and more so than any other time within our recent memory. As such, we are of the opinion that it may well be too late to sell positions in general. Yet in spite of extremely positive data, we need to see some stabilization in breadth and trend before actively buying the recent weakness.
On the charts, all of the indexes closed lower in Monday's shortened session. All closed at or near their intraday lows with negative internals on the NYSE and NASDAQ. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative and below their 50 DMAs as well. No signs of stabilization or reversal were noted during the past several sessions. Yet we would note that the stochastic levels are extremely oversold and in the low single digits which is fairly rare. Bullish stochastic crossovers have not yet appeared.
Yet while the charts look terrible, the data is at extremely positive readings which we have not seen for quite some time. All of the McClellan OB/OS Oscillators are extremely oversold (All Exchange:-153.01/-127.43 NYSE:-164.4/-126.88 NASDAQ:-148.41/-137.46). The detrended Rydex Ratio finds the leveraged ETF traders at their highest level of leveraged short positions in the past decade at -3.78 while insiders via the Open Insider Buy/Sell Ratio finds insiders very actively buying stock at 160.4. As well, the AAII Bear/Bull Ratio finds crowd bearish sentiment almost double that of bulls at 41.67/27.0. Valuation still seems to be quite appealing as it is well below fair value, assuming current estimates hold, with the forward 12 month earnings estimates for the SPX via Bloomberg at $168.59, leaving the forward 12 month p/e for the SPX at 14.0 versus the "rule of 20" implied fair value of a 17.3 multiple. The "earnings yield" stands at 7.17%.
In conclusion, there is a host of data suggesting an important buying opportunity may be at hand. Yet the charts have not given any indications that a bottom has been achieved and a shift of trend is eminent. With portfolio managers having no need to expose their year returns over the next few sessions, we will await some improvement in breadth and trend before turning more positive.