Some Data Remains A Concern
Opinion
Yesterday’s declines in the equity indexes on heavier volume and negative breadth did manage to create some technical cracks within the charts. And while some of the data did moderate as a result of the drop, there is yet some that continue to flash warning signals for the short term. As such, we remain of the opinion that the near term outlook for the indexes is one requiring some degree of caution.
- On the charts, the situations are as follows. The SPX, DJI, RUT and MID all saw bearish stochastic crossovers falling below the 80 signal line from their prior overbought levels following the stochastic signal from the DJT from the prior session. The SPX (page 2), DJI (page 2) and DJT (page 3) all closed below their respective short term uptrend lines as well. So far, the RUT and MID (page 4) respectively have managed to hold support and short term uptrend line. So, we now see some cracks in the charts that were not present as the data was warning over the past 2 prior sessions.
- On the data, some has moderated as the only McClellan OB/OS Oscillator that remains overbought is the 21 day NYSE at +54.51. The rest are now neutral (NYSE:-19.56 NASDAQ:+23.58/+27.35). The WST Ratio and its Composite are neutral as well at 45.8 and 118.6.
- However, the OEX Put/Call Ratio (smart money) remains on a bright red warning light as the pros continue to be heavily weighted in puts at 2.21 and expecting further downside while the Equity Put/Call Ratio (contrary indicator) still shows the “crowd” as overly bullish and heavy calls at .51. So again, although there is not a heavy dominance within the data with directional implications, there are some specifics that continue to suggest to us some near term risk remains.
- In conclusion, the combination of some deterioration in the charts along with some cautionary data still imply some near term risk remains for the major equity indexes, in our opinion.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.48 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.01 versus the 10-Year Treasury yield of 2.59%.