Short Term Trends Remain Negative
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE as volumes rose on that exchange and positive internals on the NASDAQ as volumes declined. Intraday violations of support managed to recover by the close yielding no important technical events being registered on the day’s action. The data remains mostly neutral. As such, we have yet to see enough alteration in the charts and data to cause a shift from our near term “negative” outlook for the major equity indexes.
· On the charts, The SPX (page 2), DJI (page 2) and MID (page 3) closed lower on the day while the rest of the indexes managed to close in the green. NYSE internals were negative on higher volume while NASDAQ internals were positive on lower volumes. The early session weakness that violated several support levels reversed as all closed back above support by the close. Nonetheless, we still find all of the short term index trends to be negative with the exception of the COMPQX that’s neutral. Breadth remains an issue as well. Even the large caps are seeing some withering of breadth as the % of SPX stocks trading above their 50 DMAs is now just barely over half at 53% (page 9).
· The data continue to have a rather neutral bias as all of the McClellan OB/OS Oscillators are neutral (All Exchange:-6.87/-26.52 NYSE:-13.42/-25.69 NASDAQ:-1.06/-26.62). The Equity Put/Call Ratio is a neutral 0.58 while the Total (contrary indicator) and OEX Put/Call Ratios have a mildly positive tone at 1.09 and 0.92 respectively.
· In conclusion, the general rolling over appearance on the charts combined with poor breadth, high usage of margin debt, active insider selling, extended valuation and complacent investment advisor sentiment, all discussed in previous reports, continues to suggest a reasonable degree of caution over the near term should be observed for the major equity indexes. We are maintaining our near term “negative” outlook.
· 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