Data Continues Cautious Message
Opinion: The indexes closed mostly lower yesterday with the one exception of the DJI. Internals were negative on the NYSE and NASDAQ as volumes rose from the prior session. No technical events of import were registered on the charts. However, the data continues to send a rather cautionary message that, when combined with the recent violation of short term uptrend lines and magnitude of recent gains, brings us to a near term “neutral/negative” outlook as a period of consolidation or retracement has reasonable probability.
- On the charts, all of the indexes closed lower with the exception of the DJI (page 2). Internals were negative on both exchanges as volumes rose from the prior up session. No technical events were generated. However, the recent violations of short term uptrend lines on the SPX (page 2), COMPQX (page 3) and MID (page 3) still have our attention as well as the overbought stochastic levels on all of the indexes. We reiterate that no important sell signals have been generated. However, given the size of the recent gains and issues noted above, it would be quite normal, and even healthy, for the indexes to go through a period of digestion.
- The data is still sending a rather cautionary message although the McClellan 1 Day OB/OS Oscillators have dipped back to neutral (All Exchange:+22.97 NYSE:+25.95 NASDAQ:+23.33) their 21 day readings remain overbought (All Exchange:+90.4 NYSE:+115.12 NASDAQ:+7.52). The WST Ratio and its Composite remain bearish at 62.0 and 158.5 with the OEX Put/Call Ratio at a very bearish 2.91 as the pros remain very heavy in outs as they bet on near term weakness. The Gambill Insider Buy/Sell Ratio that saw insiders buying at the lows still shows them shedding stock post the rally at a bearish 6.9.
- In conclusion, we are hard pressed to be jumping on the short term bull train given the extent of the recent rally that has pushed insiders to the selling table while the crowd appears to have totally dismissed their ears of a few weeks ago. Such dynamics usually precede market indigestion. The fact that the forward valuation of the SPX now stands at a decade high also suggests near term risk is present for the markets as a whole, in our opinion.
- Forward 12 month earnings estimates for the SPX from IBES of $126.29 leave a 5.84% forward earnings yield on a 17.1 forward multiple.
SPX: 2,080/NA
DJI: 17,722/NA
COMPQX; 4,971/5,104
DJT: 7,878/8,104
MID: 1,489/1,547
RUT: 1,158/1,224
VALUA: 4,692/4,895