RTY Closes Below 50 DMA
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose from the prior session. While no support levels were violated on the charts, there was enough deterioration to raise some yellow flags as discussed below. The data continues its mixed message. However, there are a couple of data points that remain of some concern. When combined with the extended forward valuation of the SPX, we believe enough evidence has been presented to warrant moving our near term “neutral/positive” outlook to “neutral” while maintaining our intermediate term view at “neutral”.
· On the charts, all of the indexes closed lower with negative internals on higher trading volume. While no support levels were violated, there were a number of cracks that appeared the charts. The RTY (page 4) closed below its 50 DMA and directly on support, shifting back into its prior sideways pattern. Any further weakness would turn the chart negative. Both the MID (page 4) and VALUA (page 5) gave “bearish stochastic crossovers” and also returned to their prior sideways rectangle patterns. The SPX (page 2), DJI (page 2) COMPQX (page 3) and DJI (page 3) all tested their respective uptrend lines with the SPX also flashing a “bearish stochastic crossover” signal. So although no supports were broken, we believe the ice under the feet of the index has grown thinner.
· The data remains mixed. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-18.98/+23.56 NYSE:-30.78/+48.77 NASDAQ:-44.13/-0.3). The Total and Equity Put/Call Ratios (contrary indicators) find the crowd growing fearful with bullish 1.1 and 0.82 readings. However, the pros remain long puts and expect more weakness with a bearish 1.42 OEX Put/Call Ratio (smart money) while insiders continue to be active sellers at current levels with a 7.9 Gambill Insider Buy/Sell Ratio.
· In conclusion, there was enough weakness on the charts yesterday that, when combined with the data readings, to warrant changing our near term outlook to “neutral” from our prior “neutral/positive” opinion. It would not take a great deal of further weakness to cause that opinion to become more cautionary.
· Forward 12 month earnings estimates for the SPX from IBES of $132.36 leave a 5.76 forward earnings yield on a 17.4 forward multiple, near a 12 year high.
SPX: 2,237/NA
DJI: 19,832/NA
COMPQX; 5,497/NA
DJT: 9,000/NA
MID: 1,659/NA
RTY: 1,356/1,357
VALUA: 5,262/NA