Data Remains Neutral
Opinion: All of the indexes closed lower Friday with broadly negative internals as the NASDAQ suffered the worst damage while all closed at or near their intraday lows. Multiple cautionary signals were generated on the charts while the data remains largely neutral. As such, the action has shifted the scales to a neutral/negative bias while the intermediate term continues to be of concern.
- On the charts, all of the indexes closed lower Friday with negative breadth as volumes rose on the NASDAQ and declined on the NYSE. All closed at or near their lows of the day. Multiple cautionary technical signals were generated. Most importantly, the NASDAQ (page 3) closed below support as the momentum stocks from the prior several months saw further notable selling pressure. It now appears that the NASDAQ may violate its intraday low from January 20. If so, it could generate another technical down leg for that index while its A/D line continues to deteriorate, having made a new low Friday. The NASDAQ 100 looks particularly vulnerable, in our opinion. The DJI (page 2), MID (page 4), RUT (page 4) and VALUA (page 5) all closed below their short term uptrend lines as well. In addition, the DJI, MID and VALUA saw new bearish stochastic crossover signals evolve. The DJT is gathering stronger relative strength to the SPX as it remains above support and its short term uptrend line.
- Looking at the data, unfortunately, there are no strong signals suggestive of an imminent rebound. All of the 1 day McClellan OB/OS Oscillators are neutral (NYSE:+7.99 NASDAQ:-12.31 VALUA:+7.99). The 21 day levels remain oversold. The OEX Put/Call Ratio (smart money) that flashed a bearish signal Thursday night is only neutral at 1.27. The Rydex Ratio (contrary indicator) is a neutral 27.4 while the Gambill Insider Buy/Sell Ratio remains bullish but down notably from its prior 45.2 to 26.3. Insider buying has slowed. As such, there is not a great deal of encouragement coming from the data suggesting a rebound over the near term.
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- In conclusion, Friday’s action has shifted our near term outlook to neutral/negative as our belief that an important shift in market leadership is unfolding, leaving the prior success stories particularly vulnerable.
- Forward 12 month earnings estimates for the SPX from IBES is $123.13 leaving a 6.55% forward earnings yield with a 15.3 forward multiple.
SPX: 1,875/1,949
DJI: 15,975/16,592
COMPQX; 4,317/4,644
DJT: 6,790/7,022
MID: 1,271/1,315
RUT: 982/1,052
VALUA: 3,888/4,070