Sentiment Data Cautionary
Opinion
The indexes closed mixed Monday with one managing to post a new closing high. Internals were positive on the NYSE and NASDAQ as volumes declined on both exchanges from the prior session. Other than the one new closing high, no other technical events of import were generated on the charts. The data remains mixed but some of the sentiment data is intensifying its cautionary tone. For various reasons discussed in these comments over the past several sessions, the concerns that have kept our “neutral” near term outlook in place persist and appear to be bearing fruit this morning.
- On the charts, the indexes closed mixed yesterday with positive internals on the NYSE and NASDAQ as volumes declined on both from the prior session. All managed to rally well above their intraday lows. The SPX (page 2), DJI (page 2), NDX (page 3) and DJT (page 4) closed lower with the rest posting gains as the RTY (page 5) made another new closing high. All of the cumulative advance/decline lines remain positive and above their 50 DMAs. However, stochastic levels remain overbought with the exception of those that have recently given “bearish crossover signals” while all remain very extended above their 50 DMAs and support. This degree of extension has been a real concern as it implies, should some weakness occur, it may prove to be more violent and faster than might otherwise be the case. Such appears to be the case this morning.
- The data is mixed. Only the NYSE 1 day McClellan OB/OS Oscillator is overbought with the rest neutral (All Exchange:+43.15/+1.06 NYSE:+54.41/-1.14 NASDAQ:+37.73/+5.71). The OEX Put/Call Ratio is bullish at 0.77 as is the Total P/C at 1.03 while the Equity P/C is a mildly bearish 0.54. Other sentiment data has increased its cautionary tone as too much bullish sentiment exists. The Investors Intelligence Bear/Bull Ratio (contrary indicator) finds bulls swamping bears at 17.8/55.5 while the Rydex Ratio (contrary indicator) at 1.5 finds the leveraged ETF traders at their highest level of leveraged long in quite some time. Valuation finds the SPX near fair valuation based on the forward 12-month consensus earnings estimates from Bloomberg of $163.29 at a 17.0 multiple versus the “rule of 20” implied fair value of 17.1.
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- In conclusion, we are maintaining our near term “neutral” outlook for the major equity indexes in place as the current positive trends on the charts are being counterbalanced by the issues discussed above.
- SPX: 2,736/2,784
- DJI: 24,665/25,337
- NASDAQ: 7,418/NA
- NDX: 6,943/NA
- DJT: 10,832/11,218
- MID: 1,950/NA
- Russell: 1,628/NA
- VALUA: 6,291/NA