Data & Valuation Suggest PauseOpinion
All of the indexes closed higher yesterday with positive internals on The NYSE and NASDAQ. NYSE volumes were flat from the prior session while NASDAQ volume dipped. Several new closing highs were achieved on the charts, leaving all of the near term uptrends intact with one exception. The data, however, has turned a bit more cautionary and, in our opinion, may be suggesting a pause of the recent rally. So while valuation continues to be a concern, we remain of the opinion that the near term uptrends of the indexes should be respected until proven otherwise.
- On the charts, all of the indexes closed higher yesterday with positive internals. Several new closing highs were achieved including the SPX (page 2), DJT (page 3), MID (page 4), RTY (page 4) and VALUA (page 5). All of the short term uptrend lines remain intact with the one exception of the NDX (page 9) that is neutral. However, it did manage to close back above its 50 DMA as of Wednesday’s close. A violation of resistance would be required on the NDX to turn the trend positive. All of the cumulative advance/decline lines are positive and above their 50 DMAs.
- The data, however, has shifted to a point that may be suggesting some pause of the recent market strength. The 1 day McClellan OB/OS Oscillator readings remain neutral for the All Exchange and NYSE but the NASDAQ 1 day is now overbought while all of the 21 day levels are well into overbought territory (All Exchange:+47.6/+84.78 NYSE:+37.46/+93.28 NASDAQ:+62.18/+82.87). The Equity Put/Call Ratio (contrary indicator) now finds the crowd long calls at a bearish 0.52. The rest of the data listed on page 10 is primarily neutral. We would also note that the forward p/e for the SPX based on forward 12 month earnings estimates from Bloomberg is back at over a decade high of 18.3 that has been a short term stall level for the indexes over the past several weeks.
- In conclusion, while valuation continues to be of concern, we have yet to see enough evidence to alter our opinion that the near term uptrends of the indexes should be respected until negative signals are seen.