Put/Call Ratios Continue To Suggest Caution
Opinion: All of the indexes closed higher yesterday but resulted in no important technical signals being generated. For the most part, their recent sideways action continued. Internals were positive on mixed volumes. The data is mostly neutral with the exception of the put/call ratios continuing to suggest near term caution. As such, we remain neutral/negative for the short term while valuation and deteriorating breadth keep us cautious for the more intermediate term.
- On the charts, all of the indexes closed higher with NASDAQ internals more positive than the NYSE. No important technical signals were generated as the SPX (page 2) closed well off of its intraday highs and at the apex of its recently discussed triangle pattern. The pattern playing out all the way to the apex suggests a less powerful resolution of the consolidation that has still to be resolved. The DJI (page 2) tested resistance and closed above its 50 DMA but also closed well below its intraday highs.
- The DJT (page 3) had the better performance as it closed near its intraday high following the bullish stochastic crossover signal discussed yesterday. It remains in its intermediate term downtrend. The MID (page 4) remains confined in its sideways pattern while the RUT (page 4) was the only index to close above the apex of its triangle pattern with any degree of gusto and at its short term resistance level suggesting a possible breakout. However, we would wait for that signal to actually generated before taking any action.
- So net/net, not a heck of a lot was achieved yesterday from a technical viewpoint. The breadth in the SPX remains troubling as only 47.8% of its components are above their 50 DMAs while the jump in the 10 year Treasury yield to 2.37% and its highest close since last December could prove problematic for equities.
- On the data, the McClellan OB/OS Oscillators remain neutral (NYSE:-25.02/-13.27 NASDAQ:+23.7/+6.75). However, the Equity Put/Call Ratio (contrary indicator) and OEX Put/Call Ratio (smart money) still suggest near term caution with the crowd long calls at .51 and the pros long puts at 1.44.
- At 17X forward 12 month IBES earnings estimates for the SPX, we continue to see the markets vulnerable to a valuation adjustment over the intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.88% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.23 versus the 10 Year Treasury yield of 2.38%.
SPX: 2,096/2,132
DJI: 17,947/18,178
COMPQX: 5,015/???
DJT: 8,242/8,607
MID: 1,525/1,544
RUT: 1,239/1,263