DJT Closes Below Short Term Uptrend Line
Opinion: The market declines yesterday did do a bit of damage on the charts although less than what might have been expected. Volumes rose on the decline suggesting distribution with broadly negative breadth on both exchanges. Given the current state of the charts and data discussed below, we remain of the opinion that the near term outlook for the major equity indexes is neutral to negative.
- On the charts, there were only a few events worthy of note, in our opinion, as most of the indexes held support. However, the DJT (page 4) closed below its short term uptrend line giving a minor warning while the RUT (page 4) also closed below its short term uptrend line and marginally below near term support. All but the DJT are on bearish stochastic crossover signals while the NASDAQ A/D has once again closed below its 50 DMA while making a lower low. The NASDAQ A/D is another example of what concerns us regarding poor and deteriorating market breadth. As well, the notably higher volume on the NASDAQ decline (NYSE volume was only marginally higher) continues to have characteristics associated with institutional distribution. As such, the charts have a slightly negative short term tone by our work.
- On the data, First Call has raised its forward 12 month earnings estimates for the SPX from $127.38 to $128.46. Both of the NASDAQ McClellan OB/OS Oscillators are neutral (-24.11/+22.15) while the NYSE1 day is now an oversold -55.93 but the 21 day remains overbought at +57.47. They are a bit too mixed to send a strong directional signal. Meanwhile the OEX Put/Call Ratio (smart money) now shows the pros long calls at 0.75 and on a bullish signal while the Rydex Ratio (contrary indicator) remains cautionary as the leveraged ETF traders remain too optimistic at 59.5. The WST Ratio and its Composite are only neutral (42.1/119.4) having yet to send a buy signal. So, the data, in our opinion, has a slightly negative tone at this point.
- In conclusion, the scales have not quite turned enough to alter our neutral to negative near term outlook for the major equity indexes.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.46% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.46 versus the 10 Year Treasury yield of 2.5%.
See Attached PDF