SPX Closes Below Short-Term Uptrend Line

Data Remains Mostly Neutral

Opinion

All of the indexes closed lower Friday with negative internals on the NYSE and NASDAQ as volumes increased on both exchanges from the prior session. The SPX closed below its short term uptrend line with a potential cautionary signal registered on the DJI. We suspect the weakness may have been due to a rush of yearend tax loss selling. The data is mostly neutral with a couple of encouraging signals appearing. So while valuation continues to be of some concern, with the one exception of the SPX, all of the other near term uptrends remain intact and should continue to be respected, in our opinion.

• On the charts, all of the indexes closed lower Friday with negative internals on higher volume. All closed at or near their intraday lows. Only two technical events of import occurred as the SPX (page 2) closed below near term uptrend line, turning its trend to neutral from positive, and the DJI (page 2) flashing a “bearish stochastic crossover” signal. However, the DJI chart has yet to suggest the crossover is actionable. The cumulative advance/decline lines for the All Exchange and NYSE remain positive with the NASDAQ’s remaining neutral. All are above their respective 50 DMAs.

• The data is mostly neutral as are all of the McClellan OB/OS Oscillators (All Exchange:+0.47/+10.5 NYSE:+10.17/+34.44 NASDAQ:-13.72/-12.6). The Equity Put/Call Ratio is a neutral 0.59 as is the OpenInsider Buy/Sell Ratio at 50.7. We would note the Buy/Sell Ratio has been improving over the past two weeks as insiders have increased their stakes. Yet it does remain in neutral territory. Two positive signals appeared with the Total Put/Call Ratio (contrary indicator) finding the crowd very long puts at 1.11 while the pros are now heavy in calls via the OEX Put/Call Ratio at 0.49.

• In conclusion, most of the near term chart trends, with the one exception of the SPX, remain positive while the data appears rather benign suggesting said uptrends should still be respected. However, the negative breadth and volume on Friday is worth noting as valuation remains extended historically.

• Forward 12-month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.31 forward earnings yield on a 19.0 forward multiple.

• SPX: 2,626/2,692
• DJI: 24,318/NA
• Nadsaq: 6,826/NA
• NDX: 6,333/NA
• DJT: 10,340/NA
• MID: 1,883/NA
• Russell: 1,525/NA
• VALUA: 5,967/NA