DJT Closes Above Short Term Downtrend LineOpinion
Most of the indexes closed lower Friday with the exceptions of the DJT and RTY. However, internals were positive on the NYSE while the NASDAQ saw a positive A/D but volumes were negative. One positive technical signal was achieved on the charts while there were no further breaks of near term support levels. The data, although slightly moderated, remains encouraging and suggestive of a bounce. As such, our near term outlook remains “neutral”, in spite of very positive futures this morning, while the intermediate term view is also “neutral” due to forward valuation of the SPX remaining in the upper end of its historical range.
· On the charts, most of the indexes closed lower Friday. The DJT (page 3) and RTY (page 4) were the exceptions with the DJT actually managing to close above its short term downtrend line as noted on the chart. We consider this event to be the first priority to signal a possible change of the prior negative trend, as noted in prior comments. The RTY actually closing higher on the day may be of note as well as it has suffered the most during the recent period of market weakness. Also, although several indexes lost ground on Friday, the fact that internals were generally positive adds some encouragement. We would also note that the stochastic levels for all but the DJT are now extremely oversold and in the low single digits. We still feel it is appropriate to require more violations of short term downtrends on the other indexes, as well as improvement in the advance/decline lines for the exchanges that remain negative, before becoming more positive on the technical aspects of the charts.
· Regarding the data, as noted late last week, it was at levels that had not been seen since last January and just prior to an important rally. Although it has slightly moderated, it continues with the same message, in our opinion. All of the McClellan OB/OS Oscillators remain oversold (All Exchange:-87.97/-84.52 NYSE:-90.37/-74.86 NASDAQ:-88.84/-95.49). The Total and Equity Put/Call Ratios (contrary indicators) find the crowd nervous and heavy in puts at 1.37 and 0.70 while the Gambill Insider Buy/Sell Ratio finds insiders buying their stock at 24.9. The ISEE sentiment index has also turned a bullish -10.9. One outlier is the OEX Put/Call Ratio (smart money) showing the pros have hopped the fence once again and heavy puts at 1.77, expecting weakness.
· In conclusion, although the data seems to have been prescient as the futures indicate a sharp positive open, until we see further improvement in the charts, we are maintaining our short term “neutral” outlook for the major equity indexes.
· Forward 12-month earnings estimates for the SPX from IBES of $128.94 leave a 6.18 forward earnings yield on a 16.2 forward multiple.