Potential For Consolidation/Retracement RemainsOpinion
The indexes closed mixed yesterday with negative internals on the NYSE while NASDAQ internals were mixed. Volumes declined from the prior session on both exchanges. Some marginal new closing highs were achieved on the charts while the rest of the indexes declined. The near term uptrend lines for the indexes remain intact. However, we remain of the opinion, that potential for some consolidation/retracement of the recent rally gains is increasing.
- On the charts, the SPX (page 2), DJI (page 2) and COMPQX (page 3) closed higher yesterday resulting in new closing highs for those indexes. However, the rest of the indexes declined. We would note that the new highs were achieved with negative internals on the NYSE, unlike the new highs achieved over the past few sessions that had positive breadth and up/down volume. While not a major point, it may imply the beginning of some internal softening. Nonetheless, the near term uptrends of the indexes remain intact as do the cumulative advance/decline lines. We remain of the opinion said uptrends should continue to be respected until proven otherwise.
- The data is still implying some potential for a period of consolidation/retracement over the near term, in our opinion. The All Exchange and NYSE 1-day McClellan OB/OS are neutral but the rest remain overbought (All Exchange:+41.19/+83.36 NYSE:+31.79/+89.72 NASDAQ:+55.46/+84.97). These overbought conditions can be dampened by sideways action. Yet the current levels could also be viewed as a potential headwind. The OEX Put/Call Ratio remains bearish at 1.52 as the pro remain weighted in puts while insiders have slightly increased their selling activity to a bearish 21.3 Open Insider Buy/Sell Ratio. The forward valuation of the SPX based on forward 12 month earnings estimates at a new decade high of an 18.5 multiple, in our view, also suggests another possible hurdle for the markets at the moment. The rest of the data is neutral.
- In conclusion, while we continue to suggest the near term uptrends of the indexes should be respected, some clouds are forming suggesting the potential for a pause/retracement is increasing.