DJT Breaks Support
Opinion: The indexes closed mostly lower yesterday with the exception of the COMPQX which made a new closing high as the DJT closed below support. Internals were negative on the NYSE and mixed on the NASDAQ as volumes rose from the prior session. The majority of the indexes remain confined within their month long sideways patterns while the data remains largely neutral. As such, we have yet to see enough of a shift in the evidence, in spite of some concerns, to warrant a change in our near term “neutral” outlook for the major indexes. Historically high valuation of the SPX at a 17.4 multiple keeps the intermediate term view “neutral” as well.
· On the charts, all but the COMPQX closed lower yesterday with negative internals on the NYSE and mixed internals on the NASDAQ. While the COMPQX (page 3) made a new closing high, we would note the NASDAQ A/D was negative, implying money chasing fewer stocks as breadth weakened. Such action is typically unhealthy for the markets. And while the rest of the indexes remain confined within their month long sideways patterns, the DJT (page 3) closed below support while the RTY closed on support. So we see the chart structure weakening but lacking formal and notable sell signals at this point. The VIX (page 9) remains at its 12 month lows and continues to imply some resurgence in market volatility, in our opinion.
· The data remains largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:+8.04/+27.26 NYSE:+1.73/+27.52 NASDAQ:-20.68/+2.6). The Equity Put/Call Ratio (0.62) and Gambill Insider Buy/Sell Ratio (10.7) remain neutral while the OEX Put/Call Ratio (1.67) has turned bearish as the pros are now long puts and expecting weakness. The Bull/Bear investor sentiment readings discussed yesterday are a concern as there currently is a dearth of bearish sentiment.
· In conclusion, while we continue to have some concerns for the major equity indexes, there remains a lack of actionable signals to alter our near term “neutral” outlook as the bulk of the indexes continue their month long sideways action. Valuation keeps the intermediate term view also “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $130.93 leave a 5.75 forward earnings yield on a 17.4 forward multiple, a 12 year high.
SPX: 2,237/NA
DJI: 19,735/19,975
COMPQX; 5,432/NA
DJT: 9,041/9,157
MID: 1,659/1,690
RTY: 1,352/1,388
VALUA: 5,262/5,388