Data Remains Somewhat Negative
Opinion
All of the indexes closed lower yesterday with negative internals as volumes rose from the prior session. All closed at or near their intraday lows. Although no major technical alarms were triggered, there were a few cautionary signals generated on the charts. The data remains mixed but continues to have a somewhat negative tone, in our view. As such, we remain near term “neutral/negative” for the major equity indexes. Historically decade high valuation for the SPX keeps us “neutral” for the more intermediate term.
- On the charts, all of the indexes closed lower with negative internals on higher trading volume yesterday. Some cautionary technical signals were registered as follows. The DJT (page 3) closed below both support and its short term uptrend line. The RUT (page 4) closed below its short term uptrend line as well, as did the VALUA (page 5). As mentioned in past comments, breaks of near term uptrend lines can result only in sideways consolidations. However, given the magnitude and slope of the Brexit bounce, it would be far from unusual for the indexes to give back a respectable percentage of their recent gains. We suspect this may be the higher probability over the near term when the data is added to the picture.
- The data, while remaining mixed, still has a rather negative tone regarding near term projections. While all of the 1 day McClellan OB/OS Oscillators are neutral, the 21 day levels are still overbought (All Exchange:+80.46 NYSE:+100.74 NASDAQ:+64.47). The recent Investors Intelligence Bear/Bull Ratio (contrary indicator) finds bullish advisors almost double the amount of bears at 23.3/54.4. The Gambill Insider Buy/Sell Ratio has slipped back to neutral but remains low at 8.5 while the OEX Put/Call Ratio (smart money) finds the pros extremely heavily weighted in puts at a very bearish 5.84. As such, the data is suggesting some gathering clouds, in our opinion.
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- In conclusion, the combination of the nearly vertical rise in the index charts now starting to exhibit some warning signals, in combination with the data, suggest that going long at current levels is pressing near term bets to an extreme. Some digestion/retracement of recent gains has enough of a probability to keep us near term “neutral/negative” in our outlook.