Data Remains Neutra
Opinion: Yesterday’s declines in the major equity indexes left little changed from a technical perspective while the data remains largely neutral. As such, it suggests some further sideways action for the near term. Yet given the market internals and lack of buy signals, we remain of the opinion that the recent market correction may not have yet run its full course.
- On the charts, there was little change as the result of yesterday’s action. Internals were negative on the NYSE and NASDAQ with volume increasing slightly on the NASDAQ decline with a mild dip in NYSE volume. The net takeaways for us are as follows. The DJI (Page 2) again rallied to resistance and failed. The DJT (page 3) briefly penetrated its resistance on an intraday basis but failed to close above while the MID (page 4) rallied to its downtrend line but failed while closing lower on the day. It has yet to reach what we suspect is a H&S downside target of 1,389. The COMPQX is the only index above its 50 DMA.
- The advance/decline for the All-Exchange, NYSE and NASDAQ all remain in downtrends and below their 50 DMAs. While the % of SPX stocks trading above their 50 DMAs has dropped to 33.9% which is a level recently associated with correction lows, we have yet to see enough evidence to suggest a high probability that the current correction is complete in spite of IBES forward 12 month earnings estimates for the SPX being raised from $126.40 to $127.60 as of this morning.
- On the data, almost all remains neutral including the McClellan OB/OS Oscillators (NYSE:-5.46/-34.99 NASDAQ:+7.53/-44.49). Only the Total Put/Call Ratio (contrary indicator) is flashing a bullish signal as put buying has swelled the ratio to 1.08.
- In conclusion, although the futures are indicating an up opening, the charts and data have yet to show enough encouragement to suggest the recent decline in the major equity indexes is finished.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.6% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.60 versus the 10 Year Treasury yield of 2.44%.