Some 50 DMAs Violated
Opinion: All of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes declined from Friday’s quarter ending levels. While there were no violations of support on the index charts, a number of 50 DMAs were violated leaving the short term trends a mix of negative and neutral. The data remains mixed between neutral and positive levels although high levels of margin debt and investment advisor complacency remain concerns as does extended valuation. As such, our near term “negative” outlook for the major equity indexes remains unchanged.
- On the charts, all of the indexes closed lower yesterday but recovered from their intraday lows. Internals were negative on both the NYSE and NASDAQ. Support levels held but the 50 DMAs of the MID (page 4), RTY (page 4) and VALUA (page 5) were broken to the downside. The short term trends are negative for the SPX (page 2), DJI (page 2) and RTY while the rest are neutral. We would also note the NASDAQ Advance/Decline line has dropped to neutral and below its 50 DMA.
- The data is mixed. Neutral readings are coming from all off the McClellan OB/OS Oscillators (All Exchange:+29.5/+0.32 NYSE:+35.09/+10.92 NASDAQ:+4.16/-12.99). The Equity Put/Call Ratio and Gambill Insider Buy/Sell Ratio are also neutral at 0.67 and 18.7 respectively. Bullish signals are coming from the Total and OEX Put/Call Ratios at 0.98 and 0.73. However, as mentioned previously, the use of margin debt has swelled 21% on a y/y basis to an all-time high of over $513B while investment advisors remain complacent as bulls outnumber bears 3:1.
- In conclusion, our near term “negative” outlook for the major equity indexes remains unchanged given extended valuation, investment advisor complacency, current short term trends and the high degree of leverage being currently employed.
- Forward 12 month earnings estimates for the SPX from IBES of $132.89 leave a 5.63 forward earnings yield on a 17.8 forward multiple, near a decade high.
SPX: 2,342/2,373
DJI: 20,109/20,865
COMPQX; 5,795/5,923
DJT: 8,906/9,283
MID: 1,687/1,728
RTY: 1,338/1,384
VALUA: 5,331/5,477