Short Term Trends Remain Negative
Opinion: The indexes closed mixed Friday with mixed NYSE internals while NASDAQ internals were positive. Volumes sank on the NYSE from the prior session while NASDAQ volumes rose. The DJI closed below technical support while the data remains largely neutral. We see no shift in evidence at this stage to alter our near term “negative” outlook for the major equity indexes.
· On the charts, the indexes closed mixed with the COMPQX (page 3) and RTY (page 4) closing higher on the day as the rest posted losses. The only technical event of import was the DJI (page 2) closing below near term support as the DJT (page 3) and MID (page 4) tested their support levels. The break on the DJI chart may be of some real import as, by our work, the next level of potential support is another 500 points below Friday’s close. The short term trends of the indexes remain negative as the NASDAQ cumulative advance decline continues its downtrend and below its 50 DMA. The All Exchange and NYSE A/Ds are currently neutral.
· The data remains largely neutral as are all of the McClellan OB/OS Oscillators (All Exchange:-15.31/-29.12 NYSE:-14.14/24.73 NASDAQ:-3.07/-32.61). Both the OEX and Equity Put/Call Ratios are neutral at 1.16 and 0.69 while the Total Put/Call Ratio (contrary indicator) finds the crowd getting nervous and long puts at 1.21. The Gambill Insider Buy/Sell Ratio is also neutral at 11.2. As such, the data is fairly noncommittal at the moment.
· In conclusion, we remain near term negative on the major equity indexes as our concerns regarding weakening market breadth, negative short term chart trends, investment advisor complacency and extended forward valuation of the SPX persist. We would add to our list of concerns that insider selling hit a six year peak in February as insiders unloaded $7.8 billion in their holdings while, according to “Insider Money”, margin debt recently hit an all-time high of $513.3 billion. When viewed in concert, the picture presents us with what we view to be a poor risk/reward scenario at present.
· Forward 12 month earnings estimates for the SPX from IBES of $133.07 leave a 5.68 forward earnings yield on a 17.6 forward multiple, near a decade high.
SPX: 2,298/2,364
DJI: 20,109/20,865
COMPQX; 5,795/5,863
DJT: 8,906/9,101
MID: 1,687/1,728
RTY: 1,338/1,384
VALUA: 5,331/5,441