Some Bearish Stochastic Crossovers RegisteredOpinion
The indexes closed lower yesterday with negative internals on both the NYSE and NASDAQ as NYSE volumes declined from the prior session with NASDAQ volumes rising. No changes in the short term trends were registered. However, two bearish stochastic crossover signals were triggered. The data remains mixed and inconclusive. We remain of the opinion that the near term trends on the charts should still be respected. Yet some degree of caution is warranted, in our opinion, given extended valuation and some other factors discussed below.
- On the charts, all of the indexes closed lower yesterday with negative internals across the board. All closed at or near their intraday lows. While no violations of the near term trends or support levels were seen, we did find bearish stochastic crossover signals established on the COMPQX (page 3) and NDX (page 3). At this point, they are just warnings and not yet actionable until violations of support would be triggered. Nonetheless, they are worth noting as the cumulative advance/decline line for the NASDAQ is negative. The cumulative A/D for the NYSE is positive and neutral for the All Exchange. We would also note the % of SPX components trading above their 50 DMAs remains near levels associated with near term peaks at 73.9%.
- The data is mixed. All of the McClellan OB/OS Oscillators, with the exception of the NASDAQ 1 day that is mildly oversold, are neutral (All Exchange:-44.68/+32.31 NYSE:-36.53/+45.8 NASDA:-50.47/+26.13). The Total Put/Call Ratio (contrary indicator) is a bullish 0.98 counterbalanced by a very bearish OEX Put/Call Ratio of 1.98. The Open Insider Buy/Sell Ratio remains neutral at 37.3 but the new Investors Intelligence Bear/Bull Ratio (contrary indicator) still shows too much optimism at 15.2/60.0. As well, the 12-month forward p/e for the SPX based on forward 12-month earnings estimates from Blomberg is still at a 15 year high of an 18.8 multiple.
- In conclusion, while the charts remain generally positive, there is enough evidence, in our opinion, to not jump blindly into the markets. Some caution is warranted.