Psychology Data Darkens
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE while NASDAQ internals were slightly positive. Volumes declined on the NYSE and rose on the NASDAQ versus the prior session. No technical events of import were generated while the data remains mixed but with some gathering clouds in the psychology data. As such, there is not yet enough of a shift in the evidence to alter our current near term “neutral” outlook for the major equity indexes while forward valuation for the SPX staying near historic highs keeps the intermediate term view also “neutral”.
· On the charts, the indexes were split yesterday with the SPX (page 2), DJI (page 2) and COMPQX (page 3) closing higher while the rest declined on the day. No major technical events occurred, leaving the SPX and COMPQX in their short term uptrends while the rest continue their ongoing neutral “rectangle” patterns. Technically, in our opinion, the action was a nonevent.
· Looking at the data, it continues its mixed message. All but the 21 day NYSE McClellan OB/OS Oscillators are neutral with the NYSE 21 day mildly overbought (All Exchange:-15.17/+32.0 NYSE:-17.05/+52.99 NASDAQ:-20.41/+13.12). The Equity Pt/Call Ratio is a mildly bullish 0.71 but the rest of the psychology data is turning a bit more cautionary. The Rydex Ratio (contrary indicator) finds the leveraged long ETF traders back at historically high leveraged long exposure at 70.1 along with the new Investors Intelligence Bear/Bull Ratio (contrary indicator) showing investment advisors almost entirely on the bullish side of the boat at 17.6/61.8. In contrast to the “crowd” believing the law of gravity has been repealed, insiders remain active sellers at current levels with a 8.4 Gambill Insider Buy/Sell Ratio. Our experience has been that when the crowd is bordering on euphoric, as is the current case, and insiders are heading to the exits, a reasonable degree of caution should be exercised regarding equity exposure.
· In conclusion, although the data yellow lights are increasing in their intensity, until a break of support on the charts occurs, we are inclined to maintain our current near term “neutral” outlook for the major equity indexes.
· Forward 12 month earnings estimates for the SPX from IBES of $132.36 leave a 5.8 forward earnings yield on a 17.2 forward multiple, near a 12 year high.
SPX: 2,253/2,298
DJI: 19,832/19,992
COMPQX; 5,531/5,663
DJT: 9,000/9,325
MID: 1,659/1,697
RTY: 1,356/1,357
VALUA: 5,290/5,387