Data Remains Mixed
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose on both exchanges. Most closed near their intraday midpoints while the DJT closed near its intraday low. The charts weakened further as more support levels were violated. And while some of the data has become more encouraging in some respects, its remains mixed to the point of not sending a strong enough consensus signal to alter our near term “neutral/negative” outlook. The intermediate term remains “neutral” as breadth, although having weakened recently, remains generally positive while valuation remains a concern.
- On the charts, all of the indexes closed lower yesterday with negative internals on higher volume. Charts weakened further with the DJT (page 3), MID (page 4) and VALUA (page 5) all closing below their respective near term support levels adjusted below. The SPX (page 2) closed below its 50 DMA. And while the stochastic levels have declined notably and are approaching oversold conditions, only the COMPQX is now oversold. We would also note the advance/decline line for the NASDAQ (page 5) is now negative and below its 50 DMA. As such, we have yet to see technical developments that would suggest the recent correction is complete.
- The data, although improving, remains mixed. On the positive side, all of the McClellan 1 day OB/OS Oscillators remain oversold (All Exchange:-73.79 NYSE:-83.61 NASDAQ:-67.31). The Total and Equity Put/Call Ratios (contrary indicators) find the crowd fear increasing as they add to their put exposure at 1.03 and 0.79. However, the OEX Put/Call Ratio (smart money) at 1.81 finds the pros also increasing their put exposure to high levels as they bet on expectations of more near term weakness. The Gambill Insider Buy/Sell Ratio, at a neutral 9.4, has yet to see insiders showing up at the buy window while the WST Ratio and its Composite are neutral at 59.7 and 136.0 respectively. As such, the data scales have not tilted sufficiently to alter our near term outlook.
- In conclusion, both the charts and data have yet to send strong enough messages that would suggest the indexes are out of the woods from their recent correction. High valuation for the SPX counters generally positive breadth, leaving our intermediate term view at “neutral”.
- Forward 12 month earnings estimates for the SPX from IBES of $125.82 leave a 6.06% forward earnings yield on a 16.5 forward multiple.
SPX: 2,066/2,104
DJI: 17,650/18,058
COMPQX; 4,780/4,969
DJT: 7,523/7,771
MID: 1,452/1,498
RUT: 1,133/1,201
VALUA: 4,539/4,694