More Bearish Stochastic Crossovers Signaled
Opinion
The indexes closed mixed Thursday with negative NYSE internals where trading volume dipped from the prior session and mixed internals on the NASDAQ on higher volume. No support or resistance levels were violated on the charts although the number of bearish stochastic crossover signals increased. The data remains a mix of neutral, positive and cautionary signals yielding no high probability directional implications. Thus given the current state of the charts and data, we have yet to find enough of a shift in conditions to alter our near term “neutral/positive” outlook for the major equity indexes.
- On the charts, the indexes closed mixed yesterday with negative NYSE internals. The NASDAQ saw negative breadth but positive up/down volume. The DJT (page 4), MID (page 4) and RTY (page 5) closed higher on the day as the rest declined with the COMPQX (page 3) closing on resistance. While no support or resistance levels were violated, the DJI (page 20, MID and VALUA (page 5) flashed “bearish stochastic crossover signals”, leaving only the SPX (page 2) not in that condition. Although they cast a bit of a cloud, as over the past several months said signals have been followed by varying degrees of market weakness, they should be used for confirmation purposes. We would need to see further price action weakness for the signals to become more pertinent. The VALUA, RTY and NDX are still in near term uptrends with the rest neutral. All of the cumulative advance/decline lines are positive and above their 50 DMAs.
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- The data is mixed. While the 1 day McClellan OB/OS Oscillators are neutral, all of the 21 day levels have slipped into overbought conditions (All Exchange:+16.43/+54.36 NYSE:+13.67/+59.87 NASDA:+19.86/+51.75). The Equity Put/Call Ratio (0.64) and OpenInsider Buy/Sell Ratio (40.6) are neutral with the Total P/C (0.87) and OEX P/C (0.85) bullish. Valuation finds the forward 12 month P/E for the SPX based on forward 12-month consensus earnings estimates from Bloomberg of $163.24 at a 16.7 multiple versus the “rule of 20” implied fair value of 17.0.
- In conclusion, while we see some caution signaled by the stochastic levels and 21 day OB/OS, with valuation close to fair value, we are of the opinion that not enough of a shift has occurred in the charts and data to warrant a change in our current “neutral/positive” outlook for the major equity indexes.
- SPX: 2,671/2,741
- DJI: 24,357/25,017
- NASDAQ: 7,140/7,415
- NDX: 6,769/7,017
- DJT: 10,549/10,995
- MID: 1,917/1,979
- Russell: 1,582/NA
- VALUA: 6,124/6,288