Data Remains MixedOpinion
All of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes declined from the prior session on both exchanges. While no support levels were violated, one of the indexes did close below its short term uptrend line. The data, in our view, remains mixed and uninstructive. While concerns regarding extended market valuation remain, there has not been enough evidence presented on the charts to alter our opinion that the near term trends of the indexes should continue to be respected until proven otherwise.
- On the charts, all of the indexes closed lower yesterday with negative internals but on lighter volume. The only chart event of interest, in our opinion, was the drop of the DJT (page 4) below its short term uptrend line, thus turning the trend to neutral from positive. As noted previously, the DJT had recently flashed a bearish stochastic crossover signal. So while its trend has shifted, it would require a break below support to actually turn the chart negative. All of the cumulative advance/decline lines remain positive and above their 50 DMAs although their slope has moderated slightly.
- The data is little changed. The 1-day McClellan OB/OS Oscillators remain neutral with the 21-day readings overbought (All Exchange:+2.1/+76.9 NYSE:-12.15/+79.17 NASDAQ:+16.75/+81.67). The Open Insider Buy/Sell Ratio remains neutral at 45.1. And while the Equity and Total Put/Call Ratios (contrary indicators) are bullish at 0.98 and 0.73 respectively, the OEX Put/Call Ratio still finds the pros long puts at a bearish 1.59.
- In conclusion, while there is nothing onerous on the charts or data to alter our opinion that the near term uptrends of the indexes should continue to be respected, the facts that the forward valuation of the SPX is near a 15-year high of an 18.5 forward multiple with several charts well above their respective support levels and 50 DMAs, we suspect the markets have priced in a very healthy earnings season that will begin shortly. Should the earnings not prove to meet or beat expectations, some trouble may ensue.