DJT Weakens Again
Opinion: As the bulk of the data we follow is unable to upload this morning, we will focus strictly on the charts for this report which are sending some mixed messages. Although the futures indicate a positive open, the action of the DJT discussed over the past few reports remains a concern. As such, we continue to view the very near term outlook for the major equity indexes with some degree of concern.
- On the charts, the bulk of the indexes closed higher yesterday with one exception, the DJT. While internals were positive, we once again saw a shrinking of trading volume that, although not a major concern, does add some weight to our current suspicions for some near term market weakness. We would much prefer to see volumes expanding on up days and contracting on down days, which is the exact opposite of what we have seen recently.
- The DJT chart (page 3) shows, in contrast to the other indexes advancing, this index declining on notably higher volume during yesterday’s trade. At the risk of over emphasizing this point, it has been our observation over the past several months that the DJT has been the leading index regarding overall market direction. This time could be different. However, we are not willing to take that leap of faith given the track record. The level of extension on the DJT’s part above support and its uptrend line implies some degree of appreciable risk should said levels be tested. Thus our near term concern.
- The MID (page 4) is sending the almost opposite signal as it managed to close above its near term resistance yesterday which has now been adjusted to 1,394. So, we have some mixed messages coming from the charts.
- In conclusion, unless we see a change of heart coming from the DJT, we remain of the opinion that some near term risk is present for the major equity indexes.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.44% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $123.94 versus the 10 Year Treasury yield of 2.61%
See Attached PDF