Data Unavailable
Opinion: All of the indexes closed lower yesterday with negative internals. Higher volumes were seen on the NASDAQ as NYSE volume declined. The end result was some damage to the charts as discussed below. With the bulk of our data unavailable this morning, we are foregoing a short term outlook due to the lack of supporting evidence. For the intermediate term, we remain cautious as forward 12 month earnings estimates for the SPX have been declining and remain vulnerable, in our opinion, based on corporate Q4 earnings releases to date.
- Looking at the charts, all of the indexes dropped yesterday with negative advance/decline stats. The charts suffered some weakening as the DJI (page 2) closed below support, now adjusted to 17,262, as well as closing below its 50 DMA. While other supports held, the SPX (page 2), COMPQX (page 3) and DJT (page 3) also closed below their respective 50 DMAs. We regard the 50 DMA breaks as warnings but not as critical as support violations.
- We also saw the SPX and DJT experience bearish stochastic crossovers as they dropped below the 80 signal line. So as a whole, the charts took on some water but only the DJI broke support. We still remain of the opinion that the indexes could be in the process of forming topping patterns. However, as stated yesterday, the patterns on not yet constructive enough to make a definitive call.
- The only data point available this morning is the WST Ratio and its Composite, both of which are now neutral (51.1/125.3) versus their prior bearish signal yesterday morning. Although there is an absence of additional evidence, this metric may suggest a pause from yesterday’s slide.
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- Valuation remains a concern for us regarding the intermediate term. As noted in prior reports, forward 12 month earnings estimates for the SPX have been declining to a notable degree, in our opinion. And although it is quite early in the Q4 reporting period, our observation has been a sizable amount of companies have missed estimates and lowered forward guidance. Unless there is a change in reports yet to be released, it would add to our intermediate concerns.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.06% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.62 versus the 10 Year Treasury yield of 1.83%.
SPX: 2,021/2/072
DJI: 17,262/17,816
COMPQX; 4,600/4,771
DJT: 8,836/9,184
MID: 1,437/1,472
RUT: 1,154/1,199