Indexes Starting To Diverge
Opinion
The indexes closed mixed yesterday with negative internals on the NYSE and NASDAQ as NYSE volumes declined from the prior session while NASDAQ volumes rose. Some new closing highs were achieved on the charts while others saw cautionary signals generated. Market breadth is narrowing as well. The data is mostly neutral. While some of the short term uptrends discussed in prior reports remain intact, others have turned neutral as market breadth is showing signs of weakening. Thus, with market valuation historically stretched as we enter earnings season, we believe some near term caution may be warranted.
- On the charts, the indexes closed mixed with negative internals on both the NYSE and NASDAQ. The large cap indexes of the SPX (page 2), DJI (page 2) and NDX (page 3) made new closing highs. However, the RTY (page 5) closed below its short term uptrend line shifting the trend to neutral while the MID (page 4) gave a bearish stochastic crossover signal. The DJT (page 4), MID and RTY are now in neutral trends with the rest positive. However, market breadth is showing some signs of weakness as fewer names are participating in gains. The All Exchange cumulative advance decline is now neutral with the NASDAQ cumulative A/D actually turning negative. The NYSE cumulative A/D remains positive with all still above their 50 DMAs. In our opinion, this narrowing of breadth is a less than healthy sign for market prospects.
- The data is mixed with the bulk of the McClellan OB/OS Oscillators neutral (All Exchange:-27.67/+45.45 NYSE:-13.99/+56.6 NASDAQ:-41.11/+41.15) as are the Total (0.82) and Equity (0.66) Put/Call Ratios. Insider selling has picked up a bit but remains a neutral with a 30.2 Open Insider Buy/Sell Ratio. The OEX Put/Call Ratio is a bearish 1.68.
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- As we have been discussing, the forward 12-month p/e for the SPX is at a 15-year high of an 18.7 forward multiple of recently reduced estimates from $137.37 to $136.79 at Bloomberg. By that measure, stocks are not cheap and may have already figured in a strong earnings season. Should earnings disappoint, there may be some pain involved. It suggests some caution may now be appropriate. Given narrowing market breadth, some caution may be appropriate over the near term.