Some Data Remains Short Term Cautionary
Opinion
The action yesterday left the majority of the index short term up trends intact. Yet we now find a number of data points at levels suggesting the recent rally may be vulnerable to some corrective action. Until the charts actually exhibit some fatigue, the trends remain up. However, given the state of the data, there is potential for some weakness. As such, the short term risk/reward is getting stretched that may require some nimble footwork.
· On the charts, as stated above, the short term up trends of the indexes remain intact with the exception of the DJT’s (page 3) inability to move above resistance. It was able to close above its 50 DMA yesterday but has been waffling above and below that point for the past month. The SPX (page 2) finally closed above 1,850 resistance although volumes were less than dramatic. The RUT and MID (page 4) both made new closing highs as the NASDAQ (page 3) made a new closing 13 year high. For the SPX, we would note the % of stocks trading above their 50 DMAs made a lower high as the index made a higher high showing fewer stocks in the SPX participating. So, for the charts, the overall price trends remain intact at this point.
· The data is casting a bit of a cloud over the short term landscape as the WST Ratio and its Composite are both bearish at 71.6 and 152.0 with three of the four McClellan OB/OS Oscillators overbought. Both NYSE levels are overbought at +64.55 and +96.0 with the NASDAQ 1 day an overbought +60.16. Its 21 day is a neutral +48.26. As such, these signals imply some downside vulnerability over the near term.
· In conclusion, the net result is an up trending market with some increasing risk of near term weakness should some negative news hit the tape, in our opinion.
· For the longer term, we remain bullish on equities as they remain undervalued with a 6.49% forward earnings yield for the SPX based on 12-month IBES forward earnings estimates of $120.42 versus the 10-Year Treasury yield of 2.64%.
- SPX: 1,808/?
- DJI: 15,885/16,373
- NASDAQ: 4,123/?
- DJT: 7,154/7,348
- MID: 1,330/?
- RUT: 1,150/?