Data Mostly Neutral
The indexes closed mixed Monday with positive internals on the NYSE and NASDAQ as volumes declined from those of the prior session. The DJT managed to close above resistance while there was a lack of other notable technical action on the charts. The data is largely neutral with no bright red warning lights at this point. We have been of the opinion, and remain so, that the indexes were likely to be going through a period of consolidation of the sizable gains since the beginning of the year. In fact, the SPX and DJI are essentially at the same levels as they were at the beginning of the month. While the futures point to a positive open this morning, our opinion that consolidation may continue within our positive short term outlook remains intact, largely due to the size of overhanging volume discussed below.
- On the charts, the indexes closed mixed yesterday with the DJI (page 2) and NDX (page 3) closing lower as the rest posted gains. Of note, the DJT (page 3) closed above resistance. So the near term trends are unchanged, in our view, with the DJT positive and the rest neutral. As mentioned above, our expectations regarding consolidation are largely due to the amount of sizable overhanging volumes that typically require more than a few challenges before being violated. By our work, those levels are 2,740 for the SPX and 25,500 for the DJI. In our opinion, violations of those levels are required before the indexes can establish another leg up. The cumulative advance/decline lines for the All Exchange NYSE and NASDAQ remain positive.
- The data is largely neutral including the 1 day McClellan OB/OS Oscillators (All Exchange:+29.62/+71.05 NYSE:+29.52/+91.31 NASDAQ:+32.0/+55.52). The Open Insider Buy/Sell Ratio (31.6), detrended Rydex Ratio (-0.56) and recent AAII Bear/Bull Ratio (28.33/35.67) are neutral as well. Valuation continues to appear to be appealing as it remains below fair value, with the forward 12 month earnings estimates for the SPX via Bloomberg at $168.10, leaving the forward 12 month p/e for the SPX at 16.1 versus the “rule of 20” implied fair value of a 17.3 multiple. The “earnings yield” stands at 6.1%.
- In conclusion, the charts and data continue to suggest the potential for some further consolidation, in our opinion, of the recent rally in the markets while we maintain our broader near term outlook as “positive”.
- SPX: 2,670/2,738
- DJI: 24,732/25,468
- Nasdaq: 7,166/7423
- NDX: 6,776/7,110
- DJT: 9,974/10,409
- MID: 1,806/1,867
- Russell: 1,462/1,532
- VALUA: 5,905/6,129