Data Still Show Yellow Lights
Opinion
All of the indexes closed higher yesterday with positive internals as volumes rose on the NYSE but were flat for the NASADQ. Closing prices were at various points of their respective intraday ranges. Some more resistance levels were violated on the charts with all of the near term uptrend lines remaining intact. The data continues to resister several cautionary signals. The extension of the rally combined with the data suggests to us that, although the trends remain intact, the lion’s share of near term progress has likely transpired. While some upside may remain, we continue to be of the opinion that risk has elevated, leaving us near term “neutral” in our short term outlook.
- On the charts, all of the indexes closed higher with positive internals. Both the NASDAQ (page 3) and DJT (page 3) closed above their near term resistance levels. All of the short term uptrend lines remain intact. As such, with no sell signals being generated, it is technically difficult to argue against more progress. However, two issues persist, in our opinion. The near term uptrend lines are nearly vertical in nature and, thus, unsustainable. If broken, the event would not necessarily be bearish as it could resolve in a sideways consolidation before further progress. Nonetheless, it does imply a shrinking of near term upside potential. Also, all of the stochastic levels are overbought. Again, they can stay that way for extended periods and could also resolve in a sideways move. Yet given the size of the gains, there may well be better buying opportunities ahead versus the present.
- The data is still showing yellow lights as all of the McClellan OB/OS Oscillators remain overbought (All Exchange:+62.71/+94.02 NYSE:+60.47/+121.46 NASDAQ:+71.91/+71.15). The crowd is now long puts with a 0.62 and 0.53 Total and Equity Put/Call Ratio (contrary indicators) reading. They have shed their prior fear. In contrast, the Gambill Insider Buy/Sell Ratio shows the insiders increasing their selling activity to a bearish 6.7 suggesting they are of the opinion that their own stock prices are extended. There is a moderating data point coming from the new AAII Bear/Bull Ratio at a neutral 24.42/36.87 suggesting the average individual investor has yet to fully embrace market participation.
- In conclusion, the issues discussed above leave us near term “neutral” for the major indexes.
- Forward 12-month earnings estimates for the SPX from IBES of $126.66 leave a 5.85% forward earnings yield on a 17.1 forward multiple.
- SPX: 2,080/NA
- DJI: 17,722/NA
- NASDAQ: 4,971/5,054
- DJT: 7,685/8,104
- MID: 1,489/1,547
- Russell: 1,158/1,224
- VALUA: 4,692/4,895