Overall Breadth Weakens
The bulk of the indexes closed lower Thursday with the one exception of the DJI posting a gain. Internals were negative on the NYSE and NASDSAQ as volumes declined from the prior session on both exchanges. The charts saw a few more trends turn neutral as overall breadth weakened. The data is a mix of generally neutral and positive indicators. Given the recent shift in some of the chart trends and weakness in breadth, we are altering our near term outlook from “positive to “neutral/positive” for the major equity indexes.
- On the charts, the only index to post a gain yesterday was the DJI (page 2). The rest declined with negative internals but on lighter trading volumes than the prior session. Some chart shifts were seen as the NDX (page 3) closed below near term support and is now in a near term neutral trend. The COMPQX (page 3) generated a “bearish stochastic crossover signal” but managed to hold support. Finally, the VALUA (page 5) closed below its short term uptrend line as its trend also turned neutral. So we now find the near term trends evenly split on the indexes with the SPX (page 2), DJI (page 2), DJT (page 4) and MID (page 4) in uptrends and the rest neutral. Unfortunately, overall breadth has weakened with the All Exchange Advance/Decline line now negative as is that of the COMPQX. The NYSE A/D is neutral. All are above their 50 DMAs.
- The data is mixed with all of the McClellan OB/OS Oscillators remaining neutral (All Exchange:-36.27/+15.44 NYSE:-43.53/+20.61 NASDAQ:-30.85/+14.09). The fact that none of the OB/OS are oversold may imply a bit more weakness forthcoming. The Equity Put/Call Ratio is a bullish 0.74 as is the Total P/C at 1.04. The OEX P/C is a neutral 1.0 with the 38.0 reading on the Open Insider Buy/Sell Ratio also neutral. Valuation finds consensus forward 12 month earnings estimates for the SPX at $169.01, leaving the forward 12 month p/e for the SPX at 17.0 versus the “rule of 20” implied fair value of a 17.1 multiple. The “earrings yield” stands at 5.87%.
- In conclusion, given the even split on the chart trends, some weakening of market breadth and the generally neutral implications from the data, we are of the opinion that it is now appropriate to change our near term outlook for the major equity indexes from “positive” to “neutral/positive”.
- SPX: 2,864/2,898
- DJI: 25,600/26,052
- NASDAQ: 7,891/NA
- NDX: 7,400/7,579
- DJT: 11,222/11,442
- MID: 2,020/2,053
- Russell: 1,672/NA
- VALUA: 6,514/6,635