Some Charts See Cautionary SignalsOpinion
The indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as trading volumes rose from the prior session on both exchanges. While no support levels were violated on the charts, a number of the indexes saw various forms of warning signals. As well, the data did not see enough of a shift that would suggest that an important reversal of the weakness is at hand, in spite of the futures signaling a positive open this morning. As such, we are now of the opinion that there has been enough of a turn in the weight of the evidence to alter our near term outlook for the major equity indexes from “neutral/positive” to “neutral”.
- On the charts, all of the indexes closed lower yesterday with negative internals on heavier trading volume. No support levels were violated. However, The DJI (page 2) closed below its 50 DMA while the NDX (page 3), DJT (page 4) and VALUA (page 5) closed below their short term uptrend lines turning their trends from positive to neutral, We also saw bearish stochastic crossover signals registered on the COMPQX (page 3) and DJT. None of the stochastic levels dipped into oversold territory at this point, suggesting there may be more weakness ahead. Only the COMPQX and RTY (page 5) remain in near term uptrends. Also, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ have turned neutral from positive but remain above their 50 DMAs.
- The data is almost entirely neutral. All of the McClellan OB/OS Oscillators are still neutral (All Exchange:-9.86/+36.65 NYSE:-14.4/+37.74 NASDAQ:-6.69/+37.69). Given the degree of yesterday’s weakness, and similar to the stochastic readings, we are somewhat surprised that oversold levels were not achieved. Like the stochastics, they suggest there may be more downside to come. The Equity P/C (0.65), OEX P/C (1.27), OpenIsider Buy/Sell Ratio (36.5) and new AAII Bear/Bull Ratio (23.33/35.67) are all neutral. Only the Total P/C (contrary indicator) is bullish at 1.09. Valuation did improve a bit as a result of the drop as it finds the forward 12 month P/E for the SPX based on forward 12 month consensus earnings estimates from Bloomberg of $163.23 at a 16.5 multiple versus the “rule of 20” implied fair value of 17.2.
- In conclusion, in spite of the positive futures this morning, the charts and data have turned to a point that we believe warrants changing our ear term outlook for the major equity indexes from “neutral/positive” to “neutral”.
- SPX: 2,671/2,741
- DJI: 24,357/25,017
- NASDAQ: 7,283/7,475
- NDX: 6,769/7,017
- DJT: 10,713/10,995
- MID: 1,917/1,979
- Russell: 1,582/NA
- VALUA: 6,124/6,288