Short-Term Chart Trends Mostly Unchanged

Most Stochastic Levels Remain Overbought

Opinion

The indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes rose from the prior preholiday session. One alteration was seen on the short term trends of the index charts that remain split. The data remains largely neutral. So given the fact that the large cap indexes remain in their short term uptrends while the mid and small caps languish, as well as historically high valuation being embraced by a broadly complacent investment advisor community, we remain of the opinion that there is enough risk currently present to keep our near term cautious and “negative” outlook intact.

• On the charts, all of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes rose from Friday’s light trading session. One short term trend was altered as the COMPQX closed below its short term uptrend line. No support levels violated. However, the RTY (page 4) did close back below its 50 DMA. So the charts remain split with the SPX (page 2) and DJI (page 2) in short term uptrends while the COMPQX (page 3), DJT (page 3) and MID (page 4) are now neutral with the RTY and VALUA (page 5) still in downtrends. The lack of relative participation by the small and midcap indexes remains a concern as, should the economy was actually be improving, they would likely be quicker to respond than the large caps. As well, several of the stochastic levels remain overbought but have not yet generated bearish crossover signals that would raise yellow flags.

• The data continues to be largely neutral. All of the McClellan OB/OS Oscillators are in that camp (All Exchange:+2.25/+4.4 NYSE:-4.41/+22.4 NASDAQ:-14.24/-11.24) as are the Equity Put/Call Ratio (0.68), OEX Put/Call Ratio (1.21) and Open Insider Buy/Sell Ratio (48.3).

• In conclusion, with the forward p/e of the SPX back near historically high levels at a 17.9 multiple with investment advisors seeing nothing but blue skies overhead via the Investors Intelligence Bear/Bull Ratio at 17.1/58.1 in combination with the apparently selective advances of the indexes discussed above, we remain of the opinion that enough risk is present to warrant keeping our near term “negative” outlook in place.

• Forward 12-month earnings estimates for the SPX from IBES of $134.56 leave a 5.62 forward earnings yield on a 17.9 forward multiple, near a decade high.
• SPX: 2,383/NA
• DJI: 20,888/21,117
• NASDAQ: 6,121/NA
• DJT: 9,091/9,192
• MID: 1,715/1,738
• Russell: 1,350/1,376
• VALUA: 5,368/5,466