Some Data Suggests Pause In Rally
Opinion: The bulk of the indexes closed higher Friday with the exceptions of the COMPQX and NDX. Internals were positive on the NYSE and mixed on the NASDAQ as volumes declined on both exchanges from the prior session. We now find all of the indexes in short term uptrends. However, while we are maintaining our near term “neutral/positive” outlook for the major equity indexes in place, there are a number of issues coming to the fore that suggest some pause or possible retracement of the recent gains have some higher potential of occurring.
- On the charts, only the COMPQX (page 3) and NDX (page 3) closed lower Friday as the rest advanced. While NYSE internals were positive, the NASDAQ saw a positive advance/decline but up/down volumes were negative. On Thursday’s close the SPX (page 2), DJI (page 2), NDX and DJT (page 4) close above their respective near term resistance levels while the MID (page 4) and RTY (page 5) did so on Friday. As such, we now find virtually all of the indexes in short term uptrends versus their prior neutral patterns. The cumulative advance/decline lines for all of the indexes are positive and above their 50 DMAs as well. However, the stochastic levels that are overbought across the board, combined with some data discussed below, are now suggesting some pause or retracement of recent gains may be more likely over the near term.
- On the data, we now find all of the 1 day McClellan OB/OS Oscillators have entered overbought territory as the 21 day readings remain neutral (All Exchange:+55.55/+28.08 NYSE:+60.81/+40.16 NASDAQ:+50.82/+17.73). We also find the VIX has dropped to its lowest level since January. Should we now enter a period of higher volatility, it would likely put some bumps in the road ahead for the indexes. Insiders have also pulled back on their buying activity with the OpenInsider Buy/Sell Ratio dipping to 37.4. The Equity (0.6) and OEX (1.25) Put/Call Ratios are neutral with the Total P/C (contrary indicator) a bullish 0.98.Valuation finds the forward 12 month P/E for the SPX based on forward 12 month consensus earnings estimates from Bloomberg of $162.81 at a 16.8 multiple versus the “rule of 20” implied fair value of 17.0.
- In conclusion, we are maintaining our near term “neutral/positive” outlook for the major equity indexes in place with the caveat that some of the data is now suggesting a pause or possible retracement of some of the recent gains.
- SPX: 2,671/2,741
- DJI: 24,357/24,963
- DJI: 7,140/7,415
- NDX: 6,769/7,017
- DJT: 10,416/10,767
- MID: 1,895/1,918
- Russell: 1,564/1,610
- VALUA: 6,098/6,215