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Index Charts Show Signs Of Divergence

By Guy S. Ortmann, CMTStock MarketsDec 05, 2017 10:10AM ET
Index Charts Show Signs Of Divergence
By Guy S. Ortmann, CMT   |  Dec 05, 2017 10:10AM ET
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Data Largely Neutral


The indexes closed mixed Monday with positive internals on the NYSE while NASDAQ internals were negative. Volumes rose on both exchanges from the prior session. The charts showed mixed results as some new closing highs were achieved while others saw violations of near term uptrends and support. As such, the charts may now be showing signs of divergence. The data is largely neutral. Thus we now find the outlook for the indexes to be a mixture of positive and neutral trends as is also the case with the cumulative advance/decline lines. Thus, the individual trends of the indexes should be respected on their own merits at this stage, in our opinion.

  • On the charts, the indexes closed mixed yesterday with a combination of positive and negative signals. Most closed near their intraday lows. The DJI (page 2), DJT (Page 4), MID (page 4) and VALUA (page 5) closed higher on the day with the DJI and DJT making new closing highs. The rest closed lower with the NDX (page 3) closing below support and its short term uptrend line, turning its trend to neutral from positive. The RTY (page 5) also closed below its near term uptrend line, also turning its trend to neutral. As well, we now find the NASDAQ cumulative advance/decline line now neutral versus its prior positive trend as the All Exchange and NYSE A/Ds remain positive. Given the action, we are of the opinion that the indexes may be starting to diverge with the prior leaders taking a back seat. The weakness in a number of high profile technology stocks over the past 4 sessions suggests the same.
  • The data continues to be mostly neutral in nature including all of the McClellan OB/OS Oscillators (All Exchange:+8.31/+19.45 NYSE:+20.328/+31.76 NASDAQ-3.49/+10.31). The Equity (0.56) and Total (0.84) Put/Call Ratios are neutral as is the Open Insider Buy/Sell Ratio (32.0). As well, the new AAII Bear/Bull Ratio remains neutral at 31.67/33.0. The only bearish signal is coming from the OEX Put/Call ratio at a bearish 1.8.
  • In conclusion, we suspect we may be seeing a split in performance among the various equity indexes due to the evidence discussed above while valuation is back near historic highs. Each index trend should be respected on its own merit.
  • Forward 12-month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.46 forward earnings yield on a 18.8 forward multiple.
  • SPX: 2,589/NA
  • DJI: 23,427/NA
  • Nasdaq: 6,759/NA
  • NDX: 6,224/NA
  • DJT: 9,978/NA
  • MID: 1,825/NA
  • Russell: 1,500/1,544
  • VALUA: 5,837/NA

Index Charts Show Signs Of Divergence
Index Charts Show Signs Of Divergence

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