Opinion: All of the indexes closed lower yesterday with broadly negative internals as volumes rose on both exchanges. No support levels were violated on the charts but a couple of bearish stochastic crossovers were triggered. The data remains largely neutral with some quick moderations in the 1 day McClellan OB/OS Oscillators while the OEX P/C has flipped to a bullish signal. The U.S. Dollar has rallied to resistance from its technical breakdown last week. As such, our near term outlook remains “neutral” as we may be entering a consolidation phase from the recent rally based on the charts and data. While breadth remains positive for the intermediate term, valuation is becoming elevated, in our opinion.
- On the charts, all of the indexes closed lower and near their intraday lows with negative internals and higher trading volumes. No support levels were violated. Yet there were a few blemishes that appeared. Both the RUT (page 4) and VALUA (page 5) saw “bearish stochastic crossover” signals generated while the COMPQX (page 3) closed below its 150 DMA and the MID (page 4) closed below its 200 DMA and long term downtrend line. At this stage, the action appears, in our opinion, to be that of some normal sideways consolidation from the impressive rally post the February lows.
- We would also note the U.S. Dollar measured by the UUP ETF (page 9) that saw a technical breakdown last week and discussed in our notes has now rallied back to resistance. It will, in our view, be an important factor as to whether the rally in commodities can continue. If one assumes the downtrend remains intact until violated, resistance would be expected to hold, followed by further Dollar weakness.
- The data remains largely neutral including the 1 day McClellan OB/OS Oscillators that have moderated quite quickly with the recent minor market weakness (All Exchange:-6.0 NYSE:-1.84 NASDAQ:-10.99). The WST Ratio and its Composite are neutral (49.4/126.0) while the OEX Put/Call Ratio (smart money) has flipped from yesterday morning’s cautionary signal to a bullish 0.65 as the pros have shifted to being heavy in calls.
- In conclusion, we suspect the near term to be neutral for the equity indexes as some sideways consolidation of recent gains is implied by the charts and data. And while market breadth remains positive for the intermediate term, forward valuation is starting to be of some possible concern.
- Forward 12 month earnings estimates for the SPX from IBES of $123.12 leave a 6.05% forward earnings yield on a 16.58 forward multiple.
SPX: 2,005/2,076
DJI: 17,009/17,712
COMPQX; 4,715/4,924
DJT: 7,536/8,150
MID: 1,389/1,428
RUT: 1,065/1,107
VALUA: 4,320/4,586