Opinion: All of the indexes closed lower Friday with generally negative internals but on very light trading volume. Most of the moves were minor in nature with the exception of the DJT which continues to act poorly. The data is almost entirely neutral yielding no directional implications. However, the action of the DJT remains troublesome for us. As such, we remain neutral/negative for the near term and cautious for the intermediate term due to poor internal breadth and valuation.
- On the charts, all of the indexes closed lower, but only slightly, with the exception of the DJT (page 3). After violating new support on an intraday basis, the DJT managed to raise just enough to close on support as noted. Its continued poor action keeps us concerned as it has been, in our opinion, the leading index for market movements as a whole over the past several months. We would also note 40% of the S&P 500 components are trading below their 50 DMAs while the overbought stochastic levels have turned negative but have yet to cross below the 80 signal line that would qualify as a bearish crossover signal.
- The data is almost entirely neutral including the McClellan OB/OS Oscillators (NYSE:-12.77/-13.66 Nasdaq:+1.01/-20.36). As such, the data has little to nothing to say regarding near term market propensities.
- The forward p/e for the SPX based on 12 month forward earnings estimates from IBES remains at a decade high of 17.1X suggesting valuation risk for the intermediate term.
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- So, as has been the case for a while now, we are neutral/negative on the indexes for the near term while remaining cautious for the intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.85% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.33 versus the 10-Year Treasury yield of 2.21%.
SPX: 2,115/???
DJI: 18,041/???
COMPQX; 5,015/???
DJT: 8,482/8,769
MID: 1,525/???
RUT: 1,239/1,263