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Charts Make More Progress

By Guy S. Ortmann, CMTStock MarketsJun 07, 2018 10:25AM ET
Charts Make More Progress
By Guy S. Ortmann, CMT   |  Jun 07, 2018 10:25AM ET
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Data Warnings Continue


All of the indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as overall volumes increased on both versus the prior session. The charts saw multiple improvements, including some new closing highs. However, the data dashboard continues to flash warning signals. Our near term “neutral” outlook for the major equity indexes has not been accurate over the past few sessions as the markets have continued to advance. Nonetheless, the debate between the charts and data persists, suggesting we maintain our near term “neutral” outlook.

  • On the charts, all of the indexes posted gains yesterday with positive internals. The COMPQX (page 3), NDX (page 3) and RTY (page 5) all made new closing highs as they continue to outpace the rest of the indexes. The SPX (page 2), DJI (page 2), MID (page 4) and VALUA (page 5) all closed above near term resistance with the SPX and DJI turning their trends from neutral to positive. So the DJT (page 4) is now the only index in a neutral trend. As well, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs. However, while no bearish crossover signals have appeared, all of the indexes except the DJI and DJT are highly overbought on their respective stochastic readings. As well, the VIX is at its lowest level since January at 11.64 suggesting a potential rise in volatility.
  • The data now finds only the NASDAQ 1 day McClellan OPB/OS Oscillator in neutral with the rest overbought (All Exchange:+50.51/+64.59 NYSE:+57.83/+73.02 NASDAQ:+19.98/+62.39). The Equity Put/Call Ratio finds the crowd too bullish at a bearish 0.53 with the Total P/C (0.83) and OEX P/C (1.34) neutral. And while the OpenInsider Buy/Sell Ratio is still neutral, insider buying has intensified as it has dropped from 45.4 a week ago to 28.8 as of last night. We also now find valuation fairly valued as the forward 12 month P/E for the SPX based on forward 12-month consensus earnings estimates from Bloomberg of $163.34 at a 17.0 multiple versus the “rule of 20” implied fair value of 17.0.
  • In conclusion, the debate between the charts and data appears evenly matched, in our opinion. And while we typically defer to the charts for forecasts, we believe there is enough counterbalancing evidence discussed above, that implies some likelihood of retracement, to keep our near term “neutral” outlook intact.
  • SPX: 2,736/2,784
  • DJI: 24,665/25,337
  • Nasdaq: 7,418/NA
  • NDX: 6,943/NA
  • DJT: 10,713/10,995
  • MID: 1,950/1,995
  • Russell: 1,628/NA
  • VALUA: 6,291/6,405

Charts Make More Progress
Charts Make More Progress

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