Near-Term Trends Unchanged And Split

Data Remains Mixed

Opinion

All of the indexes closed higher yesterday with positive internals on the NYSE while NASDAQ internals were mixed. Volumes rose on the NYSE from the prior session while NASDAQ volumes declined. One resistance level was violated on the charts but the near term trends are unchanged with a mix of neutral and negative trends intact. The data is mixed and inconclusive regarding near term probabilities. As little has changed on the charts and data, we are maintaining our near term “negative” outlook for the major equity indexes.

• On the charts, all of the indexes closed higher yesterday with positive internals on the NYSE. However, while the NASDAQ saw positive advance/decline stats, more volume were traded on down volume than up volume. Two positive events occurred as the DJI (page 2) closed above near term resistance while the RTY (page 4) closed back above its 50 DMA. Yet none of this activity altered the current near term trends. The SPX (page 2), DJI (page 2) and COMPQX (page 3) remain in neutral sideways patterns while the DJT (page 3), MID (page 4), RTY (page 4) and VALUA (page 5) remain in short term downtrends. At this point, we do not see enough evidence presented to alter our opinion that the selloff on 5/17 was a possible sell signal for the markets. Add the fact that valuation is near historically high levels, the DJI and DJT have diverging trends and barely half of the SPX components are trading above their 50 DMAs, there is reason for some skepticism, in our opinion.

• The data is mixed with all of the McClellan OPB/OS Oscillators neutral (All Exchange:+20.02/+16.32 NTSE:+24.83/+30.43 NASDAQ:+16.3/+4.6) as are the Equity Put/Call Ratio (0.60) and Open Insider Buy/Sell Ratio (51.9). The Total Put/Call Ratio (contrary indicator) is in bullish territory at .90 as the crowd is slightly weighted in puts while the OEX Put/Call Ratio finds the pros very bearish and heavily weighted in puts at 2.39. So the data evidence is too scattered to offer any strong near term projections.

• In conclusion, in spite of the bounce from last week’s one day notable crack in the markets, the combination of near term trends, valuation, questionable breadth and complacency on the part of investment advisors (Investors Intelligence Bear/Bull Ratio 17.1/58.1), we are inclined to maintain our near term cautious and “negative” outlook for the major equity indexes in place.

• Forward 12-month earnings estimates for the SPX from IBES of $134.56 leave a 5.63 forward earnings yield on a 17.9 forward multiple, near a decade high.
• SPX: 2,354/2,400
• DJI: 20,553/21,017
• Nasdaq: 5,908/6,140
• DJT: 8,784/9,091
• MID: 1,692/1,727
• Russell: 1,350/1,376
• VALUA: 5,368/5,466