Data Suggests Pause
Opinion: The indexes closed mixed yesterday with positive internals on the NYSE while NASDAQ internals were mixed with negative breadth but positive up/down volumes. Volumes declined from the prior session on both exchanges. No technical events of import were registered on the charts while the data is suggesting a pause in the recent market weakness. Nonetheless, we remain “negative” in our short term expectations for the major equity indexes as our concerns regarding poor market breadth, investment advisor complacency, extended valuation and recent technical chart breaks remain unresolved.
· On the charts, The DJI (page 2) and RTY (page 4) closed lower yesterday as the rest saw minor advances. Internals were positive on the NYSE but the NASDAQ saw further negative breadth while up/down volumes were positive. No support or resistance levels were violated while all of the charts are in short term downtrends. We included potential Fibonacci retracement levels today on the charts, based on the advances from the June 2016 lows, to give an idea as to possible downside risk targets.
· The data is, as was yesterday, suggesting a pause from the breaks on Tuesday. The 1 day McClellan OB?OS Oscillator levels are mixed with the All Exchange a mildly oversold -55.5, the NASDAQ an oversold -57.37 ad a neutral NYSE of -45.53. The put/call Ratios are suggesting some lift as the Total and Equity Put/Call Ratios (contrary indicators) are showing a nervous crowd long puts at 0.99 and 0.73 respectively while the OEX Put/Call Ratio finds the pros weighted in calls at 0.83 as they expect some bounce. However, the Investors Intelligence Bear/Bull Ratio (contrary indicator) (page 9) finds investment advisors unfazed by the recent market cracks as bulls continue to broadly outnumber bears at 17.3/56.7.
· In conclusion, while the data is implying a pause in weakness, advisor sentiment noted above, negative short term chart trends, extended forward valuation of the SPX and lack of improvement in poor market breadth continue, in our opinion, to warrant a near term “negative” outlook for the major equity indexes.
· Forward 12 month earnings estimates for the SPX from IBES of $133.07 leave a 5.67 forward earnings yield on a 17.64 forward multiple, near a decade high.
SPX: 2,298/2,375
DJI: 20,616/20,865
COMPQX; 5,669/5,863
DJT: 8,906/9,228
MID: 1,687/1,728
RTY: 1,340/1,395
VALUA: 5,331/5,441