Data Scales Still Tilt CautionaryOpinion
The indexes closed mixed yesterday with mixed internals on both the NYSE and NASDAQ, Volumes declined from the prior session resulting in little movement on the indexes in general. Another cautionary sign was generated on the charts while the data continues to send a somewhat cautious message. As well, the VIX remains near its 2 year low implying a forthcoming increase in volatility. As such, we remain near term “neutral/negative” for the major indexes while forward valuation of the SPX remains at a decade high, keeping our intermediate term outlook “neutral”.
- On the charts, the indexes closed mixed yesterday with mixed internals. Breadth was positive on the NYSE but up/down volumes were negative. The opposite was true for the NASDAQ. The net result was little change in price movement. The SPX (page 2), COMPQX (page 3), DJT (page 3) and MID (page 4) closed higher with the DJI (page 2), RUT (page 4) and VALUA (page 5) closing lower. No support or resistance levels were violated. However, the MID joined the DJI and DJT in flashing a “bearish stochastic crossover” signal, implying at least a slowing of trend. We are also of the opinion that the VIX (page 9) trading near its 2-year support level suggests a fairly high probability of an increase in volatility, over the near term, that has frequently been expressed by lower prices on the major indexes.
- The data, in our opinion, continues to carry a somewhat cautionary tone. While the 1 day McClellan OB/OS Oscillators remain neutral (All Exchange:-2.77 NYSE:-17.81 NASDAQ:+12.79), the 21 day levels remain overbought (All Exchange:+98.42 NYSE:+11.71 NASDAQ:+90.7) with the NYSE at an extreme. The Gambill Insider Buy/Sell Ratio at a bearish 7.2 shows insiders viewing recent strength as a selling opportunity while the Rydex Ratio (contrary indicator) finds the leveraged ETF traders at 2016 peak levels of leveraged long at 58.5. As well, the Investors Intelligence Bear/Bull Ratio (contrary indicator) finds advisors more than twice as bullish as bears at 21.6/53.9. Thus the data has some overhanging clouds.
- In conclusion, the charts and data continue to suggest a “neutral/negative” forecast over the near term for the indexes while the 17.2 multiple on the SPX at a decade high keeps our intermediate term view “neutral”.