DJT Closes Below Uptrend Line
Opinion: All of the indexes closed lower yesterday with negative internals as volumes declined from the prior session. All closed at or near their intraday lows. No support levels were violated on the charts but the DJT, which we consider the leading index, closed below its intermediate term uptrend line. And while the vast majority of the data remains neutral, the OEX Put/Call Ratio has turned cautionary again while valuation appears a bit stretched. As such, we are now “neutral” for the near term outlook given the issues stated above. The intermediate term remains “neutral/positive” due to strong breadth although valuation is an issue here as well.
- On the charts, all of the indexes closed lower with negative internals on lower volumes. There was minimal intraday “bounce” as selling remained in control throughout the day. No support levels were violated but the DJT (page 3) did weaken a bit as it closed below its intermediate term uptrend line form the January lows for the first time. While this is not a major event, given the extension of the rally and that we consider the DJT to be the leading index for the rest of the markets, there is now the possibility that the rest of the indexes may follow suit over the near term.
- The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-10.26 NYSE:-26.67 NASDAQ:+7.87). The one warning signal is coming from the OPEX Put/Call Ratio (smart money) as the pros have flipped again, this time to a very bearish 3.71 from their mildly bullish position yesterday morning. The pros, measured by this ratio, have been jumping back and forth over this fence quite frequently of late. Nonetheless, the signal is what it is.
- Finally, with the forward 12 month forward P/E for the SPX at 16.8 and just shy of the peak seen prior to the January correction, valuation has become an increasing concern. The big difference is breadth is significantly stronger now versus January. Yet, we believe Q1 earnings will need to have some positive surprises to maintain current valuation.
- Forward 12 month earnings estimates for the SPX from IBES of $122.83 leave a 5.94% forward earnings yield on a 16.8 forward multiple.
SPX: 2,025/2,076
DJI: 17,438/17,859
COMPQX; 4,756/4,924
DJT: 7,696/8,150
MID: 1,425/1,471
RUT: 1,065/1,120
VALUA: 4,385/4,552