Charts See Multiple Positive Events
Opinion: All of the indexes closed higher yesterday with strong internals and heavy trading volumes. All closed at or near their intraday highs. Several positive events took place on the charts. However, the recent rally from the 9/29 low has now pushed some of the data to levels suggestive of some near term weakness and retracement of a portion of the gains. As such, we are now neutral/negative for the short term. For the intermediate term, we remain neutral until we see a change in the current downtrend of the NASDAQ A/D line.
- On the charts, yesterday’s gains came with strong internals and trading volumes as all closed near their highs of the day. It was a good session, technically, as several chart improvements occurred as follows.
- Both the DJI (page 2) and DJT (page 3) closed above their 50 DMAs with the DJT closing above resistance.
- The SPX (page 2) also closed above prior resistance but directly on its new resistance level.
- Both the MID (page 4) and RUT (page 4) closed above their downtrend lines with the RUT also closing above resistance.
- All of these are encouraging. However, in the process, we now find the stochastic levels for the SPX, DJI, COMPQX and MID overbought and casting a bit of a near term shadow. The NYSE A/D made a higher high but the NASDAQ A/D remains in its current downtrend.
- The data is sending short term warnings with the 1 day NYSE McClellan OB/OS Oscillator very overbought at 116.49 and the 1 day NASDAQ overbought at 72.2. The WST Ratio and its Composite are on a “bear alert” signal at 70.6 and 174.4 while the OEX Put/Call Ratio (smart money) shows the pros remaining extremely long puts at 3.21 and expecting near term weakness. The good news is that the Gambill insider Buy/Sell Ratio does not show insiders heading for the exits as it is a neutral 23.0. Yet the warnings mentioned above are sufficient, in our opinion, to suggest a bump in the road over the near term. As stated above, although the NYSE A/D has made a higher high, it is our opinion that the NASDAQ A/D needs to follow suit before changing our intermediate term neutral outlook.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.35% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.83 versus the 10 Year Treasury yield of 2.06%.
SPX: 1.930/1,996
DJI: 16,302/16,925
COMPQX; 4,552/4,795
DJT: 7,850/8,162
MID: 1,350/1,426
RUT: 1,103/1,161