Data Mostly Neutral
Opinion: All of the indexes closed lower Friday on mostly negative internals and slightly higher trading volumes. Some of the short term uptrends of the major indexes were violated on a closing basis while the data is primarily neutral. Although the trend violations are not conclusive, when combined with the continued negative signals coming from sentiment and valuation, our evaluation suggests the level of risk/reward has turned a bit more cautionary for both the short and intermediate term.
- On the charts, Friday’s internals were suggestive of some distribution while a few potentially negative signals were triggers on the charts. The SPX (page 2), DJT (page 3) and MID (page 4) all closed below their short term uptrend lines. These signals, however, are not conclusive as they may only imply sideways action as opposed to a decline. Breaks below support would be required for the signals to actually turn bearish. Nonetheless, they do suggest a pause at least from to recent gains. We would also note the DJT saw a bearish stochastic crossover signal that, in combination with its trend break, imply a darker picture for that index. As such, the charts have, at least, likely lost some momentum.
- The data remains largely unchanged and neutral. Only the NYSE 21 day McClellan OB/OS is overbought at +67.08. However, sentiment remains a real concern as the Rydex Ratio (contrary indicator) remains near a decade peak of leveraged long ETF trader bullish sentiment at 69.8 while valuation, in our opinion, is stretched to another decade high of 17.3X declining forward 12 month First Call earnings estimates for the SPX.
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- In conclusion, some clouds have entered the chart landscape while sentiment and valuation are cautionary. Thus we remain cautious for the near and intermediate term risk/reward outlook for the indexes.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.8% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $121.98 versus the 10 Year Treasury yield of 2.0%.
SPX: 2,063/???
DJI: 17,861/???
COMPQX: 4,813/???
DJT: 8,877/9,236
MID: 1,474/???
RUT: 1,219/???