More 50 DMAs ViolatedOpinion
All of the indexes closed lower yesterday with broadly negative internals on both the NYSE and NASDAQ. Volumes rose from the prior session on both as well. The charts saw some technical deterioration described below while the data remains largely neutral in nature. We remain cautious in our near term outlook for the equity indexes as our concerns regarding extended valuation, high margin debt and advisor complacency have yet to abate, thus suggesting risk currently outweighs reward.
- On the charts, all of the indexes closed lower yesterday with broadly negative internals on the NYSE and NASDAQ as volumes rose from the prior session. All closed at or near their session lows. Technical deterioration came in the form of the SPX (page 2) closing below its near term support as well as its 50 DMA. It did manage to hold its long term uptrend line but marginally so. Both the MID (page 4) and VALUA (page 5) closed below their 50 DMAs as well but did not violate support. The cumulative advance/decline lines for the All Exchange and NYSE have turned form positive to neutral while the NASDAQ A/D (page 9) has turned negative and is below its 50 DMA.
- The data remains largely neutral and uninstructive. All of the McClellan OBOS Oscillators are neutral (All Exchange:-44.03/+8.06 NYSE:-48.76/+19.96 NASDAQ:-39.89/-1.64). The Equity Put/Call Ratio (0.65), OEX Put/Call Ratio (1.16) and Open Insider Buy/Sell Ratio (42.0) are neutral as well. The Total Put/Call Ratio (contrary indicator) saw the crowd load up on puts at 1.16, giving the one positive signal.
- In conclusion, we remain of the opinion that a high level of risk is present versus potential reward as the forward valuation of the SPX at an 18.0 multiple (near a 15-year high) combined with heavy margin exposure up 19.7% y/y and the Investors Intelligence Bear/Bull Ratio (contrary indicator) implying complacency on the part of investment advisors combine to suggest appreciable downside risk is present should an event occur that could cause a shift in sentiment. The recent weakening of the index charts and market breadth are now adding to that concern.