Data Mixed
Opinion: All of the indexes closed lower Friday with negative internals as volumes rose from the prior session. All closed at or near their intraday lows. Although no support levels were violated on the charts, several other yellow flags were raised suggesting an increased potential for near term risk. The data remains mixed but is short of flashing any consensus that a near term reversal is imminent. As such, our near term outlook has turned “neutral/negative” from its prior “neutral” view while the intermediate term remains “neutral” due to the opposing factors of positive breadth and high valuation.
- On the charts, all of the indexes closed lower with poor internals on higher volume, suggesting institutional distribution. The SPX (page 2), DJI (page 2) and VALUA (page 5) closed below their short term uptrend lines, following the same breaks on the other indexes on Thursday. As well, all of the indexes are now on “bearish stochastic crossover signals”, implying the possibility of a move to oversold conditions over the near term. So although no support levels were violated, we are of the opinion that the issues discussed above warrant an elevation in near term risk.
- The data remains mixed. Unfortunately, all of the McClellan OB/OS Oscillators are only neutral, with the exception of the NYSE 21 day remaining an overbought +58.06. So no oversold conditions have been reached at this point. The WST Ratio and its Composite are also neutral at 39.8 and 121.8 respectively along with the Gambill Insider Buy/Sell Ratio at 9.4. And while the Total and Equity Put/Call Ratios (contrary indicators) see an elevation in crowd fear to 1.09 and 0.81 as they buy puts, the OEX Put/Call Ratio (smart money) see the pros also loading up heavily on puts to 2.83 as they expect further near term weakness. As such, the data is shy of suggesting any near term relief for the indexes.
- In conclusion, further technical warnings coming from the charts, in combination with a lack of buy signals from the data, suggest an increase in near term risk. Thus we are changing our near term outlook to “neutral/negative” from “neutral”. The intermediate term outlook remains “neutral” as generally positive market breadth is being offset by elevated valuation.
- Forward 12 month earnings estimates for the SPX from IBES of $125.82 leave a 6.0% forward earnings yield on a 16.7 forward multiple.
SPX: 2,087/2,132
DJI: 17,650/18,058
COMPQX; 4,861/5,003
DJT: 7,638/7,950
MID: 1,482/1,530
RUT: 1,133/1,201
VALUA: 4,636/4,792