DJT Remains Negative
Opinion
The bulk of our data is unavailable this morning. As such, we will focus on the charts which are seeing some interesting developments. All of the indexes closed lower yesterday with negative internals as volumes declined from the prior up session. No major technical events took place but the DJT continued to be the worst performer remaining what we believe to be a negative forecaster for the markets in general. Several of the charts are forming what appear to be triangle formations that are approaching resolution. We remain neutral/negative for the short term and cautious for the intermediate term.
- On the charts, all of the indexes closed lower with differing degrees of decline. Most of the indexes saw only minor declines. However, the DJT (page 3) saw the greatest damage as it tested near term support at 8,308. We continue to view it as the leading index and thus it remains both a near and intermediate term concern.
- The SPX (page 2), DJI (page 2), RUT (page 4) and MID (page 4) appear to be forming near term triangle formations as they have all seen a series of lower highs from 5/20 and a series of higher lows from 5/7. As the patterns are close to their apexes, they imply resolution of the consolidation relatively soon. Standard technical analysis would say the prior trend should continue which would mean an upside move in this case. However, we have our issues with that theory at this point as internal breadth suggests we are far from a healthy market with only 54% of the SPX components above their 50 DMAs as the index is only 10 points shy of a new high.
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- Recent market action has also implied institutional distribution, in our opinion, over the past several sessions. The combination of narrowing breadth and increasing leverage may be more of a determining factor than text book theory. The action of the DJT does not help the situation, in our view. As well, although only a confirming issue, all but the COMPQX are on bearish stochastic crossover signals. As such, we suspect the resolution may be to the downside. Time will prove us right or wrong.
- Valuation remains an intermediate term concern as the forward p/e for the SPX remains near a decade high at 17.1X IBES 12 month forward estimates.
- As such, we are not thrilled with what we see for either the short or intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.85% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.25 versus the U.S. 10-year yield of 2.13%.
- S&P 500: 2,096/2,132
- US 30: 18,041/18,319
- NASDAQ: 5,015/?
- Dow Jones Transportation: 8,308/8,607
- S&P Midcap 400: 1,525/1,544
- Russell: 1,239/1,263