DJT On Bearish Stochastic Crossover
Opinion: While the charts remain essentially intact, the data is now suggesting risk, over the near term, is once again elevated warranting caution based on some sentiment levels and the McClellan OB/OS Oscillators. Also, the DJT has flashed a bearish stochastic crossover signal suggesting at least a pause in its progress.
- On the charts, Friday’s action left little changed from a technical view as the indexes rose slightly on light volume. The SPX (page 2) made a new closing high while the COMPQX (page 3) made a new 14 year closing high. However, the DJT (Page 3), which we consider to still be the leading index for the markets as a whole, managed to tack on a couple of points but flashed a “bearish stochastic crossover” signal as it passed below the 80 signal line. As the DJT failed to make any progress last week, the signal suggests at least a further pause in progress if not some short term weakness.
- The data has once again reached levels in several cases suggesting some near term caution is advisable. The NYSE 1 and 21 day OB/OS Oscillators are both over bought at +61.47 and 92.65 respectively. The 21 day level is of particular concern as it is approaching extreme levels. (Both the 1 and 21 day NASDAQ OB/OS are neutral at +44.53 and +43.59.)
- Sentiment is approaching levels near those seen prior to the last correction. The AAII Bear/Bull Ratio (contrary indicator) is swamped with bulls at 19.23/51.92 while the Rydex Ratio (contrary indicator) shows the leveraged ETF traders near their prior peak of bullishness at 58.6. Meanwhile, the pros have notably increased their put buying to 3.01 on the OEX Put/Call Ratio (smart money) as they appear to be quite nervous over the markets near term prospects. As we have stated in recent reports, with the SPX forward 12 month P/E Ratio at a decade high of 15.7, valuation suggests there is little room for error.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.36% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.44 versus the 10 Year Treasury yield of 2.43%.
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