Data Little Changed
Opinion
All of the indexes closed lower yesterday with negative breadth as volumes declined from the prior session. There were no technical events on the charts while the data remains little changed. The poor performance of the DJT continues to be a concern for us as well as greater than 40% of the SPX 500 stocks trading below their 50 DMAs as the index is just shy of its recent highs suggesting waning participation. As such, we remain near term neutral and cautious for the intermediate term outlook.
- On the charts, yesterday’s action was so fractional with the indexes declining on lighter volume that there were virtually no new technical events triggered. Trends and support/resistance levels remain unchanged. We would only note that all but the DJT are overbought on their stochastic levels but have yet to send bearish reversal signals. And as noted above, we find it somewhat disturbing that with the SPX (page 2) just shy of its highs, 42% of its components are trading below their 50 DMAs. A healthy market usually has broader internal participation.
- The data remains largely unchanged as only the NYSE 21 day McClellan OB/OS Oscillator is overbought with the remainder at neutral levels (NYSE:+21.34/+62.85 NASDAQ:+22.44/+26.92). The new AAII Bear/Bull Ratio (contrary indicator) is neutral at 22.78/32.07. The only strong signal is coming from the OEX Put/Call Ratio (smart money) that shows the pros strongly increasing their bets for near term weakness at 1.96. As such, the OEX puts a slightly negative tilt to the data.
- For the intermediate term, the DJT (page 3) remains an issue due to its poor performance as we view it as the leading index while the decade high 17X multiple for the SPX based on forward 12 month First Call earnings estimates leaves little room for “error”. Via that metric, we believe risk continues to outweigh reward 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 U.S. 10-Year yield of 1.88%.
- S&P 500: 2,067/2,115
- Dow Jones 30: 17,827/18,204
- NASDAQ; 4,898/???
- Dow Jones Transportation: 8,647/9,002
- S&P Midcap 400: 1,496/1,540
- Russell 2000: 1,249/?