DJT Continues To Lag
Opinion: The indexes closed higher yesterday with positive breadth and higher trading volumes resulting in some of the indexes closing above their respective resistance levels. However, the DJT continues to trade very poorly and is close piercing an important support level. Most of the data is neutral with the exception of some of the sentiment indicators that remain a concern. As such, in spite of the recent chart action, we are still neutral regarding the short term while remaining cautious on the intermediate term due to valuation, sentiment and the poor action in the DJT.
- On the charts, all of the indexes closed higher with the SPX (page 2), DJI (page 2), COMPQX (page 3) and RUT (page 4) closing above resistance. The RUT made a new closing high. So the action was broadly positive with one exception, The DJT, which we have noted several times as being what we consider to be the leading index, traded very poorly closing well below its intraday highs and near its lows of the day. It is very close to breaking below a 7 month support level that, should it be violated, could prove to be a very negative development for the DJT and thusly, in our view, for the indexes in general. If oil continues to rally off of its lows, further weakness in the transports would not be an unreasonable expectation. And although it has yet to take place, we are watching this action with bated breath.
- The data is mostly neutral. Only the NYSE 21 day OB/OS Oscillator is overbought as the others remain neutral (NYSE:+39.79/+64.76 NASDAQ:+32.54/+29.24). The WST Ratio, Equity Put/Call and Total Put/Call Ratios are neutral as well. Tilting the scales slightly bearish are the OEX Put/Call Ratio (smart money) that shows the pros betting on weakness as they buy puts at 1.73 while the new Investors Intelligence Bear/Bull Ratio (contrary indicator) shows advisors to be overly bullish at 13.9/50.5. So the data has a slightly negative leaning but not strong enough to be conclusive.
- We believe valuation remains stretched as the forward p/e for the SPX based on forward 12 month earnings estimates from First Call is at a decade high of 17X and a concern for the intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.88% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $123.81 versus the 10 Year Treasury yield of 1.9%.
SPX: 2,067/2,115
DJI: 17,827/18,204
COMPQX: 4,898/???
DJT: 8,647/9,002
MID: 1,496/1,540
RUT: 1,249/???