Data Mixed
Opinion: All of the indexes closed lower yesterday with broadly negative internals as volumes rose notably from the prior session. The charts saw multiple cracks in their technical structure as breadth continued to deteriorate. The data is now a mixed bag suggesting a possible pause in the recent weakness. Nonetheless, in spite of the data signals, yesterday’s action was sufficient to turn our near term outlook from “neural/negative” to “negative”.
- On the charts, all of the indexes closed lower yesterday with broadly negative internals as volumes rose sizably from the prior session. Virtually all of the indexes broke below their near term support levels. As well, the DJT (page 3) closed below its intermediate term uptrend line from last June while the MID (page 4), RTY (page 4) and VALUA (page 5) all closed below their 50 DMAs. While the SPX (page 2), DJI (page 2) and COMPQX (page 3) remain above their 50 DMAs, we remain of the opinion that these indexes will ultimately succumb to the overall market deterioration expressed by the rest of the indexes. As such, we would not be surprised to see the large cap indexes test their 50 DMAs, at a minimum. We would also note the NASDAQ advance/decline line (page 9) is not only negative but has passed below its 50 DMA while making a lower short term low.
- The data is mixed. Most of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE and NASDAQ 1 day levels that are now slightly oversold as a result if yesterday’s selloff (All Exchange:-32.85/-29.78 NYSE:-56.55/-25.42 NASDAQ:-54.95/-47.85). The Equity and Total Put/Call Ratios (contrary indicators) now find the crowd nervous and long puts at 1.01 and 0.59 respectively. The Gambill Insider Buy/Sell Ratio remains stuck at a neutral 11.2. So the data is suggesting the possibility of some pause in the decline.
- In conclusion, while we may see some short term pause from yesterday’s market weakness, the warning signals from the charts combined with issues discussed in prior comments such as increase in margin debt, the swelling of passive ETF purchases and general complacency on the part of investment advisors as noted by the 17.5/53.4 Investors Intelligence Bear/Bull Ratio (contrary indicator), is sufficient to cause a shift in our near term outlook for the major equity indexes from “neutral/negative” to “negative”.
- Forward 12 month earnings estimates for the SPX from IBES of $133.07 leave a 5.67 forward earnings yield on a 17.6 forward multiple, near a decade high.
SPX: 2,299/2,375
DJI: 20,616/20,865
COMPQX; 5,669/5,863
DJT: 8,906/9,228
MID: 1,687/1,728
RTY: 1,340/1,395
VALUA: 5,331/5,441