Short-Term Uptrends Remain Intact

Data Moderates But Still Suggests Pause

Opinion

The indexes closed mostly lower Thursday with the one exception of the DJI making a marginal new closing high. Internals were positive on the NYSE and negative on the NASDAQ as volumes declined from the prior session on both exchanges. The short term uptrends of the index charts remain intact while the data has moderated a bit but, in our opinion, continues to imply a pause/retracement of the recent rally. Historically high valuation remains a concern. However, we still believe the near term trends should be respected until proven otherwise.

• On the charts, the only index managing to close in the green yesterday was the DJI (page 2) that made a marginally new closing high. No support levels on the charts were violated while all of the near term uptrends remain intact as they do on the various cumulative advance/decline lines as well. The only potential fly in the ointment, in our view, on the charts is that all are well into their respective overbought stochastic readings. However, as noted in past comments, said levels do not become actionable until bearish crossover signals are registered.

• The data has moderated a bit but still suggests a potential pause or partial retracement of the recent rally gains. Only the NASDAQ is mildly overbought on the 1 day McClellan OB/OS Oscillators while the rest are now neutral (All Exchange:+48.57/+55.3 NYSE:+48.47/+67.32 NASDAQ:+51.21/+45.64). The All Exchange and NYSE 21 day readings remain overbought. The Total (0.79) and Equity (0.56) Put/Call Ratios are neutral as is the Open Insider Buy/Sell Ratio (42.2). The OEX Put/Call Ratio has turned a mildly bullish 0.93 as the pros are now slightly long calls. With the forward p/e for the SPX still at an 18.2 forward multiple and over a decade high, it also suggests some pause in our opinion.

• In conclusion, we remain of the opinion that the near term uptrends of the index charts should be respected until proven otherwise, in spite of our concerns regarding extended market valuation. However, the combination of OB/OS levels and stochastic readings suggest some pause/retracement over the near term.

• Forward 12-month earnings estimates for the SPX from Bloomberg of $137.23 leave a 5.56 forward earnings yield on a 18.2 forward multiple, a decade high.
• SPX: 2,460/NA
• DJI: 21,840/NA
• NASDAQ: 6,300/NA
• DJT: 9,234/9,550
• MID: 1,713/1,760
• Russell: 1,395/1,425
• VALUA: 5,470/5,620