Sideways Patterns Continue
Opinion: Most of the indexes closed higher yesterday with the exception of the DJT. All closed at or near their intraday highs as internals were positive while volume dipped on the NYSE and rose on the NASDAQ. No support or resistance levels were violated, leaving the recent sideways action in place. The data remains mostly neutral but two cautionary signals are staring to intensify. Nonetheless, the weight of the evidence leaves us near tern neutral in our outlook while remaining neutral/positive for the intermediate term although valuation is becoming an issue in that regard.
- On the charts, the only index unable to post a gain yesterday was the DJT (page 3). All closed at or near their intraday highs with positive internals. No major technical events were registered. However, the SPX (page 2) closed back above its intermediate term uptrend line while the COMPQX (page 3) closed back above its 200 DMA. The RUT (page 4) closed back above its short term uptrend line while the DJT, although closing lower, tested support and is now oversold on its stochastic reading. While oversold, the stochastic has not yet yielded a bullish reversal signal.
- The data remains largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-7.72 NYSE:-21.81 NASDAQ:+6.77). The 21 day levels are also neutral. There are 2 warning signals in the form of a “bear alert” signal from the WST Ratio and its Composite at 84.8 and 188.0 along with the OEX Put/Call Ratio (smart money) at 1.95 showing the pros back to heavily weighted put positions and expecting weakness. Yet with the rest of the data neutral, we are not of the opinion that the data has become sufficiently cautionary to alter our current near term view while the media has begun wringing its hands over Q1 earnings prospects. Breadth remains positive for the intermediate term but the 16.9 forward multiple for the SPX is, in our opinion, stretched.
- In conclusion, we have not seen enough evidence to alter our short term neutral outlook while the intermediate term remains neutral/positive due to strong breadth as valuation issues are beginning to temper that outlook.
- Forward 12 month earnings estimates for the SPX from IBES of $122.64 leave a 5.93% forward earnings yield on a 16.9 forward multiple.
SPX: 2,025/2,076
DJI: 17,438/17,859
COMPQX; 4,756/4,924
DJT: 7,696/8,150
MID: 1,405/1,451
RUT: 1,065/1,120
VALUA: 4,385/4,552