Bounce Yields Little Impact

Short-Term Trends Remain Negative

Opinion

All of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as volumes declined on the NYSE and lifted on the NASDAQ. In spite of yesterday’s push to the upside, there actually was little impact, in our opinion, on the current chart structures and data. As such, given our concerns regarding generally poor market breadth, extended forward valuation of the SPX, investment advisor complacency, high use of margin leverage and insider selling, we remain near term negative in our outlook for the major equity indexes.

• On the charts, all of the indexes closed higher yesterday with positive internals. However, there were only two chart events of import registered. The COMPQX (page 3) closed above near term resistance now adjusted to 5,895 while the DJT (page 3) closed above its short term downtrend line. In spite of the overall gains, the short term downtrends remain intact for all of the indexes with the exception of the COMPQX and DJT that are now neutral. The SPX (page 2) tested resistance but failed to violate. We would also repeat our observation that although the SPX has taken only a minor % hit during March, only 52.9% of its components are trading above their 50 DMAs (page 9) reflecting what we perceive as weakening breadth. The cumulative advance decline lines are neutral on the All Exchange and NASDAQ and slightly positive on the NYSE as of yesterday’s close.

• The data remains mostly neutral as are all of the McClellan OB/OS Oscillators (All exchange:+2.18/-28.08 NYSE:+23.11/-17.59 NASDAQ:+17.48/-28.52). The Equity Put/Call Ratio is also neutral at 0.6 while the Total Put/Call Ratio (contrary indicator) finds crowd fear easing a bit to a mildly bullish 0.87. However the OEX Put/Call Ratio now finds the pros very long puts and expecting weakness at 1.88.

• In conclusion, while yesterday’s gains were notable, we do not believe they actually had enough impact on the charts or data to alter our near term negative opinion on the major equity indexes. Insider selling during February at a six year high of $7.8B and margin interest at an all-time high of $513B are also worthy of note, in our view.
• Forward 12-month earnings estimates for the SPX from IBES of $133.07 leave a 5.64 forward earnings yield on a 17.7 forward multiple, near a decade high.
• SPX: 2,298/2,364
• DJI: 20,109/20,865
• Nasdaq: 5,795/5,895
• DJT: 8,906/9,101
• MID: 1,687/1,728
• Russell: 1,338/1,384
• VALUA: 5,331/5,441