Data Sending Mixed Signals
The indexes closed mostly lower yesterday with the exceptions of the COMPQX and NDX posting gains. Internals were negative on the NYSE and NASDAQ as volumes rose from those of the prior session. There were a few technical events yielding mixed messages while the data has become a bit more mixed as well. However, while we have recently discussed some issues suggesting a tempering of enthusiasm may be warranted, none of yesterday’s events were significant enough to formally alter our near term “neutral/positive” outlook for the major equity indexes.
On the charts, the indexes closed mixed yesterday with negative internals and higher volume on both the NYSE and NASDAQ.
- Some technical events occurred sending mixed messages.
- The DJI (page 2) closed below its short term uptrend line turning its trend to neutral while the DJT (page 4) closed below its 50 DMA.
- On the positive side, the COMPQX (page 3) managed to close marginally above its near term resistance.
- So we now find the SPX, COMPQX and NDX in positive trends with the rest neutral.
- The stochastic levels for the SPX, COMPQX and NDX remain overbought but have not generated bearish crossover signals at this point.
- Another point of interest is the % of SPX stocks trading above their 50 DMAs (page 9) has been shrinking and now stands at 69.1%, suggesting some internal weakening.
The data is mixed. The 1 day McClellan OB/OS Oscillators are neutral (All Exchange:-28.44/+4.78 NYSE:-29.13/+19.67 NASDAQ:-30.07/-9.95) as are the Open Insider Buy/Sell Ratio (48.7) and detrended Rydex Ratio (+0.51).
- But the OEX Put/Call Ratio finds the pros up to their eyeballs in puts at 5.36 as they are betting heavily on near term weakness appearing.
- Valuation is approaching fair value with the spread between the forward p/e for the SPX based on Bloomberg forward 12 month consensus earnings estimates of $167.03 versus the “rule of 20” fair valuation at 16.9 versus 17.5. The spread has been narrowing over the past several weeks as estimates have declined with issuers generally cutting back their projections during the recent earnings season while the SPX has risen in price. While this does not suggest the markets can’t go higher, we are now of the opinion that participation may become significantly more selective.
In conclusion, while we are maintaining our near term “neutral/positive” outlook for the major equity indexes, the issues discussed above suggest a moderating of enthusiasm may be appropriate at the current time.