Data Remains Mostly Neutral
The indexes closed lower Thursday with negative internals on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. The charts did see a few more cautionary signals generated. However, and more importantly, no support levels were violated as the vast majority of the indexes remain in their near term uptrends. The data is mostly neutral as well. As such, while the past few of our reports have suggested a heightening of vigilance, the weight of the evidence has not been sufficient to alter our near term “positive” outlook for the major equity indexes. We continue to hold that opinion.
On the charts, all of the indexes closed lower yesterday with negative internals on higher trading volume. It was a day of distribution with the S&P 500, Dow Jones Industrial Average and VALUA registering “bearish stochastic crossover” signals that were seen on the Dow Jones Transportation and S&P Midcap 400 at the close of Wednesday’s session. As well, the RTY closed below its short term uptrend line, turning its near term trend to “neutral”. While these technical events should be noted, they are not, in our opinion, strong enough to cause alarm. They may only imply some sideways action as has been seen over the past few sessions. The cumulative advance/decline lines for the All Exchange, NYSE, and NASDAQ remain positive.
The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-9.96/+85.28 NYSE:-13.04/+100.13 NASDAQ:-7.77/+74.43). The OEX Put/Call Ratio is a neutral 1.35 as the pros remain relatively evenly balanced between puts and calls. We would also note that in spite of the significant rally from the beginning of the year, the detrended Rydex Ratio (contrary indicator) that measures the action of the leveraged ETF traders is still in neutral territory at +0.39). We view their lack of exuberance as a positive. The % of SPX stocks trading above their 50 DMAs remains near peak cautionary levels at 90.3 but is not a valuable “timing tool” by our experience. The spread between the forward p/e for the SPX, based on consensus estimates from Bloomberg at $167.40, versus the “rule of twenty” stands at 16.6 versus 17.3. While positive, it is getting closer to fair value as forward earnings estimates have been gradually declining while the SPX has risen.
In conclusion, we have yet to see any sell signals of note on the charts, with the uptrends staying largely intact, while the data remains rather benign thus causing us to keep our “positive” near term outlook in place.
- SPX: 2,745/2,796
- DJI: 25,858/26.370
- COMPQX; 7,404/7,575
- NDX: 7,008/7,206
- DJT: 10,298/10,675
- MID: 1,898/1,956
- RTY: 1,546/1,587
- VALUA: 6,135/6,330