Opinion: Most of the indexes closed higher yesterday, with only one exception, as internals remained positive but volumes declined from the prior session. Closes were a mix within intraday ranges. Several index resistance levels were tested, with a couple of positive chart events, although none were violated on a closing basis. The U.S. Dollar tested support after an intraday violation. The data remains largely neutral. The combinations of resistance tests on the indexes with tests of support for the Dollar suggest the potential for violations on both counts, thus leaving us near term “neutral/positive”. Breadth continues to improve keeping us intermediate term “neural/positive” as well. However, valuation continues to be stretched from a historical perspective.
- On the charts, all but the MID (page 4) closed higher yesterday with the MID posting only a fractional decline. Internals were positive but volumes declined from the prior session. The DJI (page 2), RUT (page 4) and VALUA (page 5) closed at resistance while the COMPQX (page 3) closed above its 200 DMA and intermediate term downtrend line. All in all, the action was slightly positive. The U.S. Dollar as measured by the UUP ETF (page 9) closed near support after violating it on an intraday basis. Selling volume was heavy on the Dollar suggesting pressure continues with potential of a downside break.
- The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:+36.44 NYSE:+41.87 NASDAQ:+34.13). The Equity Put/Call Ratio is a neural 0.62 while the OEX Put/Call Ratio (smart money) has moderated to a mildly bearish 1.41 as the pros still expect weakness, but less so than the prior few sessions. The Gambill Insider Buy/Sell Ratio (19.4) and Investors Intelligence Bear/Bull Ratio (28.9/43.3) remain neutral as well.
- In conclusion, the charts are suggesting possible violations of resistance for the indexes with potential for a downside break in the Dollar. With the bulk of the data neutral, we remain near term “neutral/positive”. Breath remains positive for the intermediate term but valuation is starting to become a concern, thus our “neutral/positive” view in that regard.
- Forward 12 month earnings estimates for the SPX from IBES of $122.83 leave a 5.95% forward earnings yield on a 16.8 forward multiple.
SPX: 2,005/2,076
DJI: 17,009/17,712
COMPQX; 4,715/4,924
DJT: 7,536/8,150
MID: 1,404/1,446
RUT: 1,065/1,109
VALUA: 4,320/4,586