Options Data Turns Positive
Opinion: The indexes closed mostly lower yesterday, the exception being the DJT. Internals were negative as volumes declined from the prior session. No important technical signals were generated as all remain confined within their respective near term trading ranges. The data is largely neutral as well with a slightly positive tone coming from the options levels. As such, our short term outlook is neutral/positive while we remain quite concerned for the intermediate term due to poor breadth, valuation and leverage levels.
- On the charts, the only index able to advance yesterday was the DJT (page 3) that tested resistance again but failed. The SPX (page 2) closed back below its 50 DMA but no other signal was generated. In fact, that was the case for the rest of the indexes as well. So, all of the indexes remain confined within their respective trading ranges at this point. Overall breadth remains poor as only 49% of the SPX components are above their 50 DMAs and our weekly bullish/bearish technical reversal review saw a dearth of bullish signals while bearish reversals were plentiful. The advance/decline lines for the NYSE and NASDAQ remain in a series of lower highs and lower lows as well.
- The data is still largely neutral including all of the McClellan OB/OS Oscillators (NYSE:+10.62/-9.93 NASDAQ:-23.76/-37.12). There is a somewhat positive signal coming from the options data as the Total and Equity Put/Call Ratios (contrary indicators) show the crowd long puts at .97 and .73 while the OEX Put/Call Ratio (smart money) now shows the pros shifting to the bullish side and long calls at .71. As such, the data, in our opinion, has now turned slightly positive.
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- In conclusion, while the indexes have yet to resolve their current trading ranges, the data is suggesting some slight potential for near term upside while poor breadth, valuation and leverage levels keep us cautious for the intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.99% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.68 versus the 10 Year Treasury yield of 2.15%.
SPX: 2,063/2,109
DJI: 17,376/17,795
COMPQX; 5,020/5,144
DJT: 8,127/8,444
MID: 1,454/1,505
RUT: 1,210/1,245