DJI & DJT Close Below 50 DMAs
Opinion: The markets closed mostly lower Friday with mostly negative internals. Volumes declined versus the prior session. No support or resistance levels were violated although the DJI and DJT closed below their 50 DMAs. With the data giving mixed messages at this point, we suspect the near term outlook for the indexes to be rather neutral in nature. However, with UPS’s disappointment on Friday adding to our concerns regarding the decline in forward earnings estimates for the SPX, we remain cautious for the intermediate term.
- On the charts, only the COMPQX (page 3) managed to close higher Friday. Yet the COMPQX A/D was negative. The other indexes closed at or near their lows of the day. Although all supports held, both the DJI (page 2) and DJT (page 3) closed below their 50 DMAs. The DJT appeared to be the weakest performer given poor earnings from UPS. And while we suspect there is a possibility the DJT may be forming a topping pattern, it is still too early to make that call with any degree of confidence. As such, the charts remain neutral for the near term.
- The data is a mixed bag. All of the McClellan OB/OS Oscillators remain neutral (NYSE:+25.38/+19.99 NASDAQ:-40.74/-28.66) along with the WST Ratio and its Composite (40.9/120.6). The Put/Call Ratios, however, are at various stages of bullish implications as the Rydex Ratio (contrary indicator) continues to warn with a 68.1 reading as leveraged ETF traders remain very heavily leveraged long. So taken as a whole, the data is too diverse to give any strong near term directional implications.
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- In conclusion, it is difficult to make a short term forecast beyond neutral given the charts and data. However, with sliding 12 month forward earnings estimates of $124.62 for the SPX, that were surely not helped by UPS’s announcement on Friday, pressing the forward P/E to 16.5, we remain concerned regarding valuation that historically has a way of eventually expressing itself via a market correction.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.07% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.62 versus the 10 Year Treasury yield of 1.82%.
SPX: 2,021/2/072
DJI: 17,507/17,900
COMPQX; 4,600/4,771
DJT: 8,782/9,184
MID: 1,411/1,468
RUT: 1,154/1,199