Opinion: The indexes put in another mixed performance yesterday with only the MID and RUT gaining ground. It qualifies as a day of distribution as internals were negative with volumes ring on the price declines. No technical signals were triggered while the data has turned almost entirely neutral. As such our near term outlook is now neutral while the intermediate term remains a concern due to valuation, poor breadth and leverage while some of the charts have developed intermediate term downtrends.
- On the charts the indexes closed mixed as the MID (page 4) and RUT (page 4) were the only two indexes that managed to end in the green. Internals were negative as volumes rose during the selling. No major signals were generated. However, the DJI (page 2) did flash a bearish stochastic crossover casting a bit of a shadow on that index.
- Some of the charts from an intermediate term timeframe have become troublesome. The DJI has now formed a series of lower highs and lower lows post its May closing high with a lot of overhanging volume. The same holds true for the MID. The RUT has made a lower high from its June high but has some volume support while the DJT (page 3) remains in its intermediate term downtrend. And while the SPX chart (page 2) has been challenging its prior high, more than half (51%) of its components remain below their 50 DMAs. The COMPQX (page 3) is the only index remaining in a technical uptrend. Yet it’s A/D line has been making a series of lower highs and lower lows since last April bringing the issue of breadth back into the picture.
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- The data is almost entirely neutral including all of the McClellan OB/OS Oscillators (NYSE:-13.19/-29.92 NASDAQ:-16.32/-43.54) as well as the OEX Put/Call Ratio (smart money) at 1.12 versus yesterday’s caution signal. As such, the data is directionless.
- So, we now perceive the near term outlook to be neutral while some of the charts have taken on a more negative intermediate term look adding to our concerns of valuation, poor market breadth and the amount of leverage in the markets that is up 15% y/y.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.89% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.5 versus the 10 Year Treasury yield of 2.32%.
SPX: 2,100/2,130
DJI: 17,793/18,120
COMPQX; 5,103/???
DJT: 8,175/8,410
MID: 1,482/1,510
RUT: 1,244/1,274