More Short-Term Trends Violated

Remaining Short Term Neutral/Negative

Opinion

Most of the indexes closed lower yesterday with only the SPX posting a fractional gain. Internals were largely negative as volumes rose on both exchanges implying institutional distribution. Some more short term uptrends were violated to the downside on the charts while the data has now moderated to some degree. Our net takeaway, in spite of the futures indicating a strong open, is that both the charts and data are continuing to send a near term “neutral/negative” short term outlook for the indexes. The intermediate term outlook, given the improvement in breadth over the past few weeks, remains “neutral/positive”.

• On the charts, all of the indexes closed lower yesterday, with the exception of the SPX (page 2) that managed to close fractionally higher. Internals turned negative as volumes rose. Negative events on the charts occurred as the MID (page 4), RUT (page 4) and VALUA (page 5) all closed below their short term uptrend lines suggesting a possible change in trend. Both the MID and RUT triggered bearish stochastic crossover signals, following the DJT’s signal from Tuesday. Currently, the DJT (page 3) is the only index still in its short term uptrend as the rest have turned technically neutral. The strong futures this morning may change that picture but we will reserve judgement until the charts suggest a shift.

• One other chart worthy of note, in our opinion, is that of the U.S. Dollar as seen via the UUP ETF. It broke below near term support yesterday on strong volume after a series of lower highs. We view its weakness as a potential positive for commodity prices.

• The McClellan OB/OS Oscillators moderated notably with yesterday’s minor weakness but remain largely cautionary. The 1 day OB/OS remains overbought on the All Exchange (+60.84) and NYSE (+74.77) with the NASDAQ a neutral +45.15. The 21 day levels remain very overbought on the All Exchange (+106.82) and NYSE (+133.3) with the NASDAQ overbought at +81.27. The Rydex Ratio (contrary indicator) has moved back into very bearish territory at 50.9. However, the OEX Put/Call Ratio (smart money) has slipped back to neutral (1.28) from its prior bearish signal.

• In conclusion, we still see the charts and data as suggesting risk outweighs reward over the near term for the major indexes.

• Forward 12-month earnings estimates for the SPX from IBES of $123.57 leave a 6.21% forward earnings yield on a 16.1 forward multiple.
• SPX: 1,934/2,006
• DJI: 16,495/17,122
• NASDAQ; 4,560/4,715
• DJT: 7,057/7,662
• MID: 1,320/1,415
• Russell: 1,035/1,107
• VALUA: 4,083/4,457