Data MixedOpinion
The indexes closed mixed yesterday with only two of the seven we follow closing higher on the day. Two more warning signs were generated on the charts while internals were negative on the NYSE and NASDAQ as volumes rose on the NYSE and flat on the NASDAQ. The short term trends remain mixed as is the current overview of the data. We remain of the opinion that the current near term trends listed below should continue to be respected with the caveat that the markets are showing some negative divergences, valuation remains near historically high levels, margin debt is extreme with investment advisors exhibiting complacency. Combined, our interpretation is a high level of risk is currently present versus potential reward.
- On the charts, the DJI (page 2) and DJT (page 3) closed higher yesterday as the rest declined. Internals were negative on both exchanges. And while the DJI made another new closing high, it did so with negative breadth and negative up/down volume. Caution signals appeared on the MID (page 4) as it closed below its 50 DMA and the VALUA (page 5) closing below its near term support, turning it’s near term trend negative from neutral. As such, the DJI is the only index currently in a short term uptrend. The SPX (page 2) and COMPQX (page 2) are neutral with the balance in near term downtrends. We would also note the % of SPX components (page 9) is in a downtrend. When viewed in aggregate, we believe the markets are becoming increasingly top heavy with ever fewer stocks participating in advances as seen by negative cumulative advance./decline lines on the All Exchange and NASDAQ. Such dynamics are typically suggestive of a deteriorating market.
- The data is mixed. Briefly, the NASDAQ 1-day McClellan OB/OS is mildly oversold at -56.35 with the rest neutral. The Open Insider Buy/Sell Ratio remains neutral but declined to 30.9, suggesting a pickup in insider selling.
- In conclusion, with the charts mixed signals increasing, the fact that the forward valuation of the SPX based on forward 12-month earnings estimates from Bloomberg is back near a 15 year high with an 18.4 forward multiple and margin debt is at historically extreme levels up 20.7% y/y and investment advisors entering levels of emotional complacency as seen by the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.5/60.2, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.