Short-Term Trends UnchangedOpinion
The indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes rose from the prior session. No support levels or near term trends were violated. However, 1 day bearish technical signals were seen on the SPX and DJI. The data remains mixed and mostly neutral. We remain of the opinion that the various near term trends should continue to be respected until proven otherwise with the caveat that, in our view, high levels of market risk are present given historically high valuation, excessive margin debt being employed with a high level of complacency on the part of investment advisors.
- On the charts, all of the indexes closed lower with negative internals on higher volume. No support levels were violated, leaving the near term trends intact as follows: SPX (page 2) and DJI (page 2) bullish, COMPQX (page 3) neutral with the rest in near term downtrends. The cumulative advance decline lines are negative on the All Exchange and NASDAQ with the NYSE’s neutral. The DJT (page 3) closed back below its 150 DMA. We would also note the SPX and DJI gave bearish 1 day “shooting star” candlestick formations. Said formations have a long upper shadow, little to no lower shadow and a small real body near the lows of the day. They appear after an uptrend suggesting an exhaustion of buying pressure. While they may be worthy of note, we would consider violations of support much more meaningful as a technical indicator.
- The data is still mixed. All of the McClellan Ob/OS Oscillators are neutral (All Exchange:-33.64/+24.06 NYSE:-47.16/+43.0 NASDAQ:-40.05/-0.34) as are the Equity Put/Call Ratio (0.67) and Open Insider Buy/Sell Ratio (31.4). The OEX Put/Call Ratio is a bearish 1.61 as the pros are back to being long puts as they expect near term weakness.
- In conclusion, with the charts mixed signals increasing, the fact that the forward valuation of the SPX based on forward 12 month earnings estimates from Bloomberg is back at a 15 year high with an 18.5 forward multiple, margin debt is at historically extreme levels up 20.5% y/y and investment advisors entering levels of emotional complacency as seen by the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 16.2/60.0, we remain of the opinion that a significant amount of downside risk is present in the markets currently versus potential reward.