Some Charts & Data Weaken
Opinion
The indexes closed mixed yesterday with mixed internals on the NYSE while NASDAQ internals were negative. Both exchanges saw volumes rise slightly from the prior session. While the DJI made a new closing high, there were a number of potentially cautionary technical signals given on some of the other indexes. As well, some of the data has taken on a more cautionary tone. Given this slight shift in the weight of the evidence in combination with our stated concerns regarding valuation and investment advisor complacency, we are altering our near term outlook for the major equity indexes from “neutral/positive” to “neutral/negative”.
- On the charts, the SPX (page 2) and DJI (page 2) managed to close higher yesterday as the rest of the indexes declined. The DJI did manage to make yet another new closing high. However, several potentially negative technical events were registered on some of the other indexes. Most notably, the DJT (page 3) closed below near term support as well as its intermediate term uptrend line while also flashing a bearish stochastic crossover signal that would imply confirmation of the break. As well, both the COMPQX (page 3) and VALUA (page 5) closed below their respective short term uptrend lines. Their supports were not violated but the trend break may prove to be be of some import. The RTY (page 4) tested support on an intraday basis and held. Given the signals from the other indexes, a potential break of support on the RTY would not be out of the question. While all of these signals are not outright bearish, in our opinion, they imply a weakening of structure.\
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- The data remains mixed but with some cautionary signals appearing. All of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE 21 day remaining overbought (All Exchange:+2.34/+43.74 NYSE:+8.15/+53.27 NASDAQ:-2.88/+24.98). Both the Total and Equity Put/Call Ratios are also neutral at 0.83 and 0.62 respectively. However, the OEX Put/Call Ratio (smart money) has now flipped to a bearish 1.55 as the pros have gone long puts in expectation of weakness. Finally, the Gambill Insider Buy/Sell Ratio finds insiders have again become aggressive sellers of their stock at a bearish 6.7.
- In conclusion, the chart action and data noted above has increased our concern for the near term, especially when we take into account the forward valuation of the SPX at a 17.9 decade high, based on 12 month forward IBES earnings estimates, along with the Investors Intelligence Bear/Bull Ratio (contrary indicator) showing advisor complacency at 17.5/61.2.