Data Mixed
Opinion
The past two sessions have seen some cracks appear on the charts casting a shadow over the near term market prospects. Some deterioration has taken place bringing some indexes to what we believe to be important technical levels. With the data now a mixed bag of signals, we are inclined to add a bit of a cautionary note to our prior near term neutral outlook. Looking at the intermediate term, we remain cautious due to valuation, sentiment, poor breadth and leverage levels.
- On the charts, all of the indexes closed lower yesterday with negative breadth as volumes rose on the NYSE but declined on the NASDAQ. No day end rally was seen, thus leaving the indexes at or near their intraday lows.
- The SPX (page 2) is now on a bearish stochastic crossover while breaking below its 50 DMA and long term uptrend line. So far, its support has held.
- The DJI (page 2) is also on a bearish stochastic crossover having broken support as of the close.
- The DJT (page 3) made a new 8 month closing low and now sits on what we believe to be very important technical support.
- The MID (Page 4) is on a bearish stochastic crossover closing on support but is now trading below its long term uptrend line.
- Both the RUT (page 4) and COMPQX (page 3) closed below their short term uptrend lines but remain the healthier looking of all the index charts. As such, the charts, for the most part, are seeing some deterioration that is now casting a darker short term shadow, in our opinion.
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- The data is a mixed bag as the McClellan OB/OS Oscillators remain neutral (NYSE:-24.33/-42.1 NASDAQ:-4.18/+2.06) along with the .65 Equity Put/Call Ratio. The OEX Put/Call Ratio (smart money) has now turned bullish at .78 as the pros now have shifted to expecting a bounce after having been correct in their prior bearish outlook. However, the Gambill Insider Buy/Sell Ratio sees insiders still increasing their selling into lower prices at 9.1. They are not buying the weakness. As well, the Investors Intelligence Bear/Bull Ratio (contrary indicator) still shows advisors ignoring all warning signals as they remain overly enthusiastic in their expectations at 15.4/51.6. We view this as complacency on their part.
- As such we are now neutral/negative short term and cautious for the intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.96% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.33 versus the 10-year Treasury yield of 2.39%.
- S&P 500: 2,073/2,125
- DJI: 17,840/18,165
- NASDAQ Composite; 5,047/?
- Dow Jones Transportation: 8,242/8,566
- S&P Midcap 400: 1,530/?
- Russell 2000: 1,258/?