NDX Completes Head and Shoulders Top
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose notably on both exchanges. Multiple near term support levels were violated on the charts while the NDX chart appears to have completed a “head and shoulders top” formation suggesting that index has seen only half of its downside objective. The data is a mixed bag that unfortunately lacks a sufficient amount of evidence to suggest we are on the threshold of a near term reversal. As such, our short term outlook remains neutral/negative while the intermediate term remains cautious.
- On the charts (pages 2-5), The SPX, COMPQX, MID, RUT and VALUA all closed below near term support levels. Volumes rose as decliners outweighed advancers by a wide margin. One encouraging sign, in our opinion, was the DJT that managed to hold both support and its short term uptrend line. As noted in past comments, we regard the DJT as the leading index for the markets in general. If it can continue its current performance, it offers some degree of encouragement.
- Unfortunately, the NDX (page 5) is sending the opposite signal. We are of the technical opinion that the NDX completed a “head and shoulders top” formation yesterday. Such formations are of the most reliable in technical analysis regarding fulfillment of price objectives. In this case, the implication is that of the NDX having completed only half of its downside objective at this point. The technical count suggests a target of 3,319.
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- The data remains a mixed bag. The 1 day McClellan OB/OS Oscillators remain neutral (VALUA:-25.36 NYSE:-20.73 NASDAQ:-35.88). As such, no oversold conditions exist at this point offering relief. The WST Ratio and its Composite are both bearish at 65.5 and 155.2. One glimmer of positive data is coming from the OEX Put/Call Ratio at 0.61 that now shows the pros heavy on the call side and expecting some strength. Yet we believe its influence is not strong enough to overcome the other readings.
- In conclusion, both the charts and data suggest a neutral/negative near term outlook while the NDX chart now adds to our concerns for the more intermediate term.
- Forward 12 month earnings estimates for the SPX from IBES is $123.13 leaving a 6.64% forward earnings yield with a 15.1 forward multiple.
SPX: 1,820/1,907
DJI: 15,975/16,592
COMPQX; 4,211/4,537
DJT: 6,790/7,022
MID: 1,216/1,290
RUT: 956/1,019
VALUA: 3,827/4,070