DJT Does Not Confirm DJI
Opinion
Yesterday’s market action was more of the same in terms of the popular large cap indexes overshadowing the mid and small caps. As such, the markets remain selective in that regard. Yet no technical sell signals are present on the charts. The data still has a somewhat cautionary tone although having moderated slightly. As such, given the extended nature of the rally and cautionary sentiment levels, we remain of the opinion that near term risk outweighs potential reward while the charts have yet to say “sell”.
- On the charts, the split action of the indexes continues. All of the indexes advanced on positive breadth and volume with the SPX (page 2), and the DJI (page 2) making more new all-time closing highs. The COMPQX (page 3) made a new 14-year closing high.
- However, while the DJT closed higher, it has yet to confirm the DJI and appears to possibly be putting in some short term topping action, in our opinion The MID (page 4) made another attempt to move above resistance but failed while the RUT was unable to approach resistance. In short, we continue to see money flowing into the popular large cap indexes as overall breadth remains questionable. This myopic action of the markets we cannot view as healthy. In fact, it is action frequently seen at the later stages of market advances.
- The data has moderated in some regard as only the NYSE 21 day McClellan OB/OS Oscillator remains overbought at +80.4. The balance are neutral (NYSE:+19.6/+80.4 NASDAQ:+7.97/+48.33). The OEX Put/Call Ratio (smart money) is still cautionary at 1.49, but less so than over the past few days. The “crowd” remains too optimistic with a .47 Equity Put/Call Ratio (contrary indicator) and 62.8 Rydex Ratio (contrary indicator). The Rydex shows the leveraged ETF traders at peak levels of leveraged long exposure. That may have some relation to the split action of the markets as the large cap ETFs are the most liquid and heavily traded. As such, sentiment remains a concern.
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- In conclusion, although the charts have yet to give formal sell signals, we continue to be of the opinion that enough factors exist to warrant near term caution as discussed above.\
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.23% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.82 versus the U.S. 10-Year yield of 2.32%.
- S&P 500: 2,015/?
- Dow 30: 17,283/?
- NASDAQ: 4,593/?
- Dow Jones Transportation: 8,772/?
- MID: 1,420/1,439
- Russell: 1,159/1,186