Remaining Short Term Neutral/Negative
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE while NASDAQ breadth was negative but up/down volumes positive. No technical events were generated but we now find the SPX and DJI indexes at or near the confluence of resistance and intermediate term downtrend lines that we suspect may prove problematic. The cause for short term concern continues to emanate from the data that, in some cases, is at 2 year peaks of cautionary signals. Thus we remain neutral/negative for the short term while the improvement in breadth over the past several weeks keeps our intermediate term outlook neutral/positive.
- On the charts, the indexes closed mixed with all but the DJI (page 2) and COMPQX (page 3) closing lower on the day. Breadth was negative as volumes declined from the prior session. While no definitive sell signals have been generated on the charts, the extended nature of the recent rally is of some concern, especially when taken in concert with the data. Of particular note is the current condition of the SPX (page 2) and DJI charts. Both have had significant rallies and are now at points of convergence of resistance and their intermediate term downtrend lines. Said downtrend lines should be viewed as valid until violated. As such, the confluence points may prove to be difficult hurdles for those indexes.
- The data is continuing to be of concern as the 21 day McClellan OB/OS Oscillators are the most overbought they have been in over 2 years (All Exchange:+135.66 NYSE:+166.44 NASDAQ:+107.73). The 1 day levels remain overbought as well (All Exchange:+70.22 NYSE:+79.2 NASDAQ:+62.6) although they have been moderating quickly with any market weakness. The WST Ratio and its Composite remain on a “bear alert” signal at 74.4 and 180.7 while the Rydex Ratio (contrary indicator) is back in very bearish territory at 53.3. While the OEX Put/Call Ratio (smart money) still finds the pros expecting further strength at 0.55, it is not enough, in our opinion, to counterbalance the other cautionary data.
- In conclusion, we believe there is enough evidence to remain neutral/negative for the short term outlook for the indexes. Also, gold as measured by the GLD (NYSE:GLD) ETF is starting to show some short term topping action, in our view.
- Forward 12 month earnings estimates for the SPX from IBES of $123.57 leave a 6.12% forward earnings yield on a 16.3 forward multiple.
SPX: 1,971/2,024
DJI: 16,811/17,258
COMPQX; 4,612/4,787
DJT: 7,411/7,662
MID: 1,367/1,415
RUT: 1,035/1,107
VALUA: 4,320/4,457