All Charts Show Some Technical Weakening
All of the indexes closed lower Friday with negative internals on the NYSE and NASDAQ as trading volumes rose on both exchanges from the prior session. Every index chart saw some form of technical weakening while the data is sending a mix of neutral and positive readings. As such, for the reasons described below, we are changing our near term outlook from “neutral/positive” to “neutral”.
On the charts, all of the indexes closed lower Friday with broadly negative internals on heavy trading volume. The result was every index chart we follow suffered some form of technical damage.
- The SPX (page 2), DJI (page 2), COMPQX (page 3) and NDX (page 3) all closed below their short term uptrend lines, turning their trends to neutral, while SPX flashed a bearish crossover signal and the DJI closed below near term support.
- The DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5) all closed below their 50 DMAs with the MID and RTY both violating their near term support levels.
- Regarding trend, all are now neutral with the exception of the MID and RTY turning negative.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ have shifted from positive to neutral as well.
- With all of the indexes closing at or near their intraday lows, the general overview suggests some overhanging technical clouds are now present that were not there the day before.
The data is mixed.
- All of the 1 day McClellan OB/OS Oscillators slipped into oversold territory (All Exchange;-57.35 NYSE:-52.66 NASDAQ:-64.95). While encouraging, they are capable of become more oversold.
- The Open Insider Buy/Sell Ratio (59.6), detrended Rydex Ratio (0.5) and % of SPX stocks trading above their 50 DMAs (60.4) are all neutral.
- Valuation is near fair value with the spread between the forward p/e for the SPX based on Bloomberg forward 12 month consensus earnings estimates of $166.88 versus the “rule of 20” fair valuation at 16.8 versus 17.5. The spread has been narrowing over the past several weeks as estimates have declined with issuers generally cutting back their projections during the recent earnings season while the SPX has risen in price. The slow but steady pullback of forward earnings estimates over the past several weeks is a concern.
In conclusion, the technical damage suffered by the indexes Friday on heavy volume has altered the chart trends enough to shift our outlook to “neutral” while the data is not strong enough, in our view, to compensate.