Data Mixed
Opinion: All of the indexes closed notably lower yesterday with broadly negative internals. No intraday bounces were seen as selling remained persistent throughout the session. Multiple negative chart signals were triggered while data remains mixed and not yet suggestive of relief. As such, the near term outlook has turned from neutral/negative to negative while valuation continues to concern us regarding the more intermediate term.
- On the charts, several negative events took place. The SPX (page 2) closed below support as well as its 50 DMA while the DJI (page 2) closed below its 50 DMA and near term uptrend line. The COMPQX (Page 3) also closed below support and its uptrend line while the DJT (page 3) closed below support and its 150 DMA suggesting a test of the 200 DMA. Bothe the MID and RUT (page 4) closed below their short term uptrend lines. We would also note all of the indexes gave bearish stochastic crossover signals following the DJT’s move earlier in the week. As well, none of the stochastics are oversold, thus suggesting the potential for further weakness.
- There is not a great deal of help coming from the data. All of the McClellan OB/OS Oscillators remain neutral (NYSE:-20.39/-5.67 NASDAQ:-32.41/-12.98) along with the Equity Put/Call Ratio at .69. The Gambill Insider Buy/Sell Ratio saw insiders stepping up their selling pressure as it declined to 9.9 but remains in neutral territory. Sentiment remains a concern as well as the Rydex Ratio (contrary indicator) still shows the leveraged ETF traders excessively leveraged long at 65.4 while the new Investors Intelligence Bear/Bull Ratio (contrary indicator) still shows advisors with their heads deeply planted in the sand at 14.1/56.6. We would expect to see a more dramatic display of fear from those indicators before turning more optimistic in our outlook.
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- In conclusion, with no oversold conditions present combined with current sentiment levels and negative chart signals, we view the near term outlook as negative.
- The intermediate term remains cautious with the forward SPX p/e based on forward 12 month First Call estimates near a decade high at 16.7X.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.98% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $122.68 versus the 10-Year Treasury yield of 1.92%.
SPX: 2,050/2,088
DJI: 17,642/17,970
COMPQX: 4,848/4,956
DJT: 8,647/9,002
MID: 1,496/???
RUT: 1,236/1,262