Index Performances Remain Split
Opinion
The index charts have yet to flash technical sell signals with the data still sending some warning signals. As such, the current chart trends should be respected, in our opinion, until such chart signals are given. However, we would add the important caveat that valuations and investor sentiment are extended suggesting risk is fairly high and, should sell signals be forthcoming, finding an exit could prove quite difficult.
- On the charts, all of the indexes closed higher Friday with positive breadth and up/down volumes. The SPX (page 2), DJI (page 2) and DJT (page 3) all made new closing highs with COMPQX (page 3) making a new 14 year closing high. However, comparative performance was somewhat spit as the DJT’s new high was fractional and the COMPQX closed near its lows of the day suggesting some saw the advance as a selling opportunity. The MID (page 4) closed above resistance but near its lows of the day as well. Finally, the RUT (page 4) was unable to advance above resistance while also closing near its lows. So on closer inspection, although no sell signals were given, divergent action among the indexes continues to exist.
- On the data, only the 21 day NYSE McClellan OB/OS Oscillator is overbought at +68.66. The rest are neutral. Warnings are coming from The Rydex Ratio (contrary indicator) at 65.5 showing the leveraged ETF traders at their most leveraged long levels in the past 10 years while the Equity Put/Call Ratio (contrary indicator ) is showing the “crowd” heavy in calls at .49. The AAII Bear/Bull Ratio (contrary indicator) is giving the same message at 23.82/49.12. So, investor sentiment is overly optimistic, in our view. The WST Ratio and its Composite are both on bearish signals as well at 75.9 and 162.9. As such, yellow lights continue to flash from the data dashboard.
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- In conclusion, until the charts actually start to transmit some sell signals, their trends should be respected. However, we also believe there is enough evidence to suggest that should those events occur, the exit may not prove to be “orderly”.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.19% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.82 versus the U.S. 10-Year yield of 2.32%.
- S&P 500: 2,030/?
- Dow 30: 17,609/?
- NASDAQ: 4,654/?
- Dow Jones Transportation: 8,963/?
- S&P Midcap 400: 1,420/1,445
- Russell 2000: 1,155/1,186