Likelihood Of Support Tests Increases
All of the indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the prior session. The charts saw several violations of short term uptrend lines as some other yellow flags appeared as well. And while the data remains largely neutral, one psychology component may be weakening. As such, we are now of the opinion that the weight of the evidence has shifted sufficiently to warrant changing our near term outlook to “neutral” from “neutral/positive”.
On the charts, all of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as overall trading volumes declined from those of the prior session.
- The charts saw some technical damage appear as the COMPQX (page 3), MID (page 4), RTY (page 5) and VALUA (page 5) closed below their short term uptrend lines, turning said trends to neutral from positive.
- As well, the DJT (page 4) did an about face as it closed below near term support post the prior significant two day rally. However, it did maintain its short term uptrend.
- The SPX (page 2), DJT and VALUA (page 5) flashed “bearish stochastic crossover signals”.
- Breadth deteriorated a bit as well as the cumulative advance/decline line for the All Exchange dropped to neutral while the NASDAQ’s turned negative. The NYSE A/D remains positive.
- Given the chart action, we now suspect tests of support levels may now be more likely.
- Should high “volume at price” (VAP) supports be violated, the picture would darken, in our opinion.
The data still remains largely neutral.
- The 1-day McClellan OB/OS Oscillators are all neutral (All Exchange:-17.46 NYSE:-15.81 NASDAQ:-19.6).
- The detrended Rydex Ratio (contrary indicator) at +0.66 is neutral.
- Tuesday’s AAII Bear/Bull Ratio (contrary indicator) was also neutral at 30.33/31.67. We continue to view the lack of enthusiasm on the part of the crowd as a positive.
- The % of SPX stocks above their 50 DMAs (74.8) dropped back to neutral from its prior bearish signal.
- However, the Open Insider Buy/sell Ratio (45.2), while remaining neutral, has seen a notable decline in insider buying activity that may worth noting.
- The 12-month forward consensus earnings estimate from Bloomberg for the SPX dipped $173.64, leaving the forward p/e at a 17.2 multiple as it nears fair value as opposed to being slightly undervalued for the past several weeks while the “rule of twenty” finds fair value at 17.9. As such, it is somewhat less compelling than previously viewed, but not negative.
- The 10-Year Treasury yield is 2.06%.
- The earnings yield stands at 5.82%.
In conclusion, we now believe the evidence has shifted enough to alter our near term outlook to “neutral” from “neutral/positive” as support levels may now be more likely to be tested.
- SPX: 2,950/NA
- DJI: 26,667/NA
- Nasdaq: 8,047/NA
- NDX: 7,739/NA
- DJT: 10,359/10,774
- MID: 1,933/1,987
- Russell: 1,500/1,560
- VALUA: 6,230/6,298