Data Remains NeutralOpinion
The indexes closed mostly lower Friday with mixed internals on the NYSE while NASDAQ internals were negative. Volumes declined on both exchanges from the prior session. While no support levels were violated, there were a few more cautionary signals coming from the charts as the data remains neutral. We remain of the opinion that the current near term chart trends should be respected, including those that are starting to show possible weakness, while our concerns regarding notable downside risk persist given the extended valuation of the markets combined with extreme levels of margin debt.
- On the charts, the indexes closed mixed Friday with negative internals on the NASDAQ. The NYSE had a positive A/D but up/down volumes were negative. The DJI (page 2) made another new closing high while the DJT was the only other index posting a gain on the day. No support levels were violated but cautionary signals came in the form of the SPX (page 2) closing below its short term uptrend line, as did the COMPQX that also flashed a bearish stochastic crossover signal. The VALUA (page 5) gave a bearish stochastic crossover signal as well. So, in our opinion, the state of current short term trends for the indexes is as follows. The DJI is the only index currently in a near term uptrend. The DJT is in a short term downtrend while the rest of the indexes are now neutral.
- The data is almost entirely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-10.64/+23.23 NYSE:-1.57/+45.32 NASDAQ:-21.74/+2.66). The Total (0.83), Equity (0.63 and OEX (1.19) put/call ratios are all neutral as is the open Insider Buy/Sell Ratio at 50.0.
- In conclusion, while the charts have darkened just a bit, the fact that the forward valuation of the SPX based on forward 12 month earnings estimates from Bloomberg is near a 15 year high with an 18.4 forward multiple and margin debt is at historically extreme levels and up 20.7% y/y, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.