Some Short Term Risk Remains
Opinion: Yesterday’s drop on lighter volume for the major equity indexes left the charts essentially unchanged and within their current uptrends. However, the DJT flashed a potential cautionary signal while the data, although moderated, still has some points of concern for the near term.
- On the charts, yesterday’s declines left the charts unchanged with no violations of support or trend. However, the DJT (page 3) did see its stochastic flash a bearish crossover signal to a 76 as it crossed below the 80 signal line from an overbought condition. This is not a “major” signal, in or opinion. Yet it does require some monitoring as it suggests a loss of momentum for what we consider to be the leading equity index.
- The data moderated as the WST Ratio and its composite dropped to neutral at 46.3 and 126.7 respectively. The McClellan OB/OS Oscillators saw some moderation as well with the NYSE 1 day a neutral -0.39 and the NASDAQ 21 day a neutral +26.46. However, the NASDAQ 1 day and NYSE 21 day still imply some risk at +52.9 and +56.11 respectively.
- The OEX Put/Call Ratio (smart money) remains on a very bright red warning light as the pros have loaded the boat with puts to an extremely high 2.65 and a 2.16 on the 15 DMA. They are betting very heavily on some near term market weakness while the crowd measured by the Equity Put/Call Ratio (contrary indicator) sees only blue skies above at .50. So, although the bulk of the data is not leaning extremely in one direction, some very glaring data signals continue to send warning signs.
- In conclusion, although the risk may not be extreme in nature, we remain of the opinion that some downside risk remains over the near term for the major equity indexes.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.43 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.01 versus the 10 Year Treasury yield of 2.64%.
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