Charts Improve But Data Suggests Slowing Of Progress
Opinion: Yesterday’s gains, on better yet average volume, resulted in several improvements on the charts including a new closing high on the DJT. However, we now find the data suggesting a slowing of progress with some minor risk post the six day rally in the SPX. As such, our short term outlook has turned more “neutral” in nature.
- On the charts, there were several improvements as a result of yesterday’s trade. The DJT (Page 3) made a new closing high that, as discussed yesterday, sends a more positive message for the indexes as a whole, in our opinion. We would make a side note that the new high in the DJT has pushed its stochastic into overbought territory. The SPX, DJI (page 2) and RUT (page 4) all closed above their short term resistance levels although the RUT remains below its 50 DMA. The MID (page 4) managed to close above its 50 DMA but failed to violate resistance while the COMPQX failed to violate both its 50 DMA and resistance. So, all in all, the charts improved with the exception of the COMPQX that remains below its 50 DMA and resistance while still in its short term downtrend.
- It is the data that suggests to us the markets may see some slowing of progress. The McClellan OB/OS Oscillators are not as favorable post the six day rally. The NYSE OB/OS is mildly overbought and overbought on its 1 and 21 day levels (+55.99/+62.46) while the NASDAQ is mildly overbought on its 1 day and neutral on its 21 day (+51.26/-25.16). Entering overbought territory on the NASDAQ with a failure to break above resistance, 50 DMA and short term downtrend is of some concern, in our opinion.
- The WST Ratio is neutral (60.1) but the Composite is now a bearish 152.0 while the Equity Put/Call Ratio (contrary indicator) has the crowd heavy in calls at .48. The OEX (Put/Call Ratio (smart money) is mildly bullish at .82. So the data is getting slightly stretched after six days of gains in the markets. Thus, we would expect to see some slowing of progress/minor risk for the major indexes over the near term.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.49% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $121.91 versus the 10 Year Treasury yield of 2.73%.
- SPX: 1,849/1,890
- DJI: 16,200/16,592
- NASDAQ: 4,050/4,175
- DJT: 7,550/???
- MID: 1,336/1,365
- RUT: 1,130/1,173