More Minor Cautious Signals Generated
Opinion: All of the indexes closed higher Friday with positive internals as volumes dropped notably from the prior session. While no support levels were violated on the charts, a few more minor caution signals were generated. The data remains largely neutral with a couple of outliers. As such, we remain “neutral” for our near term expectations of the major equity indexes while extended forward valuation of the SPX keeps the intermediate term view “neutral” as well.
· On the charts, all of the indexes closed slightly higher Friday with positive internals as volumes sagged dramatically. No major technical events occurred but a few more minor caution signals were registered. The DJI (page 2) closed below its short term uptrend line leaving only the COMPQX (page 3) with said near term uptrend intact. All of the other indexes are now neutral in near term trend. As well, The SPX (page 2) and COMPQX (page 3) flashed “bearish stochastic crossover” signals leaving only the DJI yet to send that signal. So the sideways patterns of the past two weeks remain intact. However, we reiterate our concerns regarding the degree that the indexes are extended above their 50 DMAs in concert with the extremely low levels of the VIX that is implying some potential resurrection of market volatility.
· The data is largely neutral as well including all of the McClellan OB/OS Oscillators (All Exchange:+4.4/+24.88 NYSE:+3.67/+37.56 NASDAQ:+2.14/+20.18). The Equity Put/Call Ratio is also neutral at 0.66. And while the OEX Put/Call Ratio (smart money) is a bullish 0.72, the Rydex Ratio (contrary indicator) is a very bearish 74.0, a decade peak in terms of leveraged ETF trader bullish sentiment.
· In conclusion, while we still have some technical concerns, there has not been enough of a shift in the weight of the evidence to change our near term “neutral” outlook for the major equity indexes as they remain in their two week long sideways patterns for the majority. The extended 17.3 forward multiple for the SPX keeps the intermediate term view also “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $131.02 leave a 5.79 forward earnings yield on a 17.3 forward multiple, a 12 year high.
SPX: 2,199/2,273
DJI: 19,115/19,975
COMPQX: 5,306/5,490
DJT: 9,041/9,381
MID: 1,618/1,690
RTY: 1,350/NA
VALUA: 5,170/5,374