Chart Trends Unchanged
Opinion: The indexes closed mostly higher yesterday but well off of their intraday highs. The exceptions were the SPX and DJI that closed lower. Internals were negative on the NYSE and positive on the NASDAQ as trading volumes rose on both exchanges from the prior session. No violations were triggered on the charts. The data is largely neutral but seeing a couple of cautionary signs appearing. As such, we are maintaining our near term “negative” outlook for the major equity indexes at this point in time.
- On the charts, the bulk of the indexes posted gains yesterday with the exceptions of the SPX (page 2) and DJI (page 2) closing lower. While most advanced, they gave up a large portion of the early session’s strength suggesting said strength was seen by many as a selling opportunity. Volumes rose on both exchanges with the NYSE internals negative and the NASDAQ internals positive. No support/resistance levels or short term downtrend lines were violated although the MID (page 4) tried to on an intraday basis but failed at the close. As such, all of the indexes are in short term downtrends with the exception of the COMPQX (page 3) which is neutral. We would also note that the % of SPX stocks trading above their 50 DMAs has slipped to 45.5%, exhibiting weakening breadth within that index.
- The data is mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:+2.17/+11.22 NYSE:-5.48/_37.29 NASDAQ:+0.28/-12.24). The Equity Put/Call Ratio remains neutral as well at 0.70. However, warning signs are coming from the Total and OEX Put/Call Ratios. The Total P/C (contrary indicator) finds the crowd long calls at 0.74 while the pros measured by the OEX P/C are now heavy in puts at 1.5 as they are expecting near term weakness. As well, the new Investors Intelligence Bear/Bull Ratio (page 9) (contrary indicator) finds advisors persisting in their broadly bullish expectations for the markets at 18.3/51.9.
- In conclusion, the near term downtrends for the indexes remain intact, advisor sentiment remains overly optimistic, market breadth remains questionable, margin interest is extended and up 21% y/y while valuation of the SPX on a forward basis remains near historic highs. As such, we are forced to maintain our near term “negative” outlook for the major equity indexes until there is a sufficient shift in the weight of the evidence.
- Forward 12 month earnings estimates for the SPX from IBES of $134.29 leave a 5.74 forward earnings yield on a 17.4 forward multiple, near a decade high.
SPX: 2,322/2,365
DJI: 20,111/20,740
COMPQX; 5,795/5,923
DJT: 8,757/9,086
MID: 1,677/1,719
RTY: 1,348/1,377
VALUA: 5,342/5,477