More Bearish Stochastic Crossovers Triggered
Opinion: All of the indexes closed lower yesterday with negative internals as volumes declined from the prior trading session on both exchanges. While no support levels were violated, more “bearish stochastic crossovers” were triggered on the charts while the data has darkened slightly. Our net take away is we remain near term “neutral” for the indexes, although the scales are starting to slip toward some degree of caution. We remain intermediate term “neutral” as well given forward valuation for the SPX remains near prior peak levels.
- On the charts, all of the indexes closed lower yesterday with negative internals as volumes declined. No support or resistance levels were violated, leaving the current sideways patterns intact. However, more “bearish stochastic crossovers” were triggered, leaving only the RUT (page 4) and VALUA (page 5) without this negative signal. As well, we would note that while general market breadth remains strong, the % of stocks in the SPX trading above their 50 DMAs has now made a lower low, suggesting some weakening in large-cap breadth.
- Looking at the data, all of the 1 day McClellan OB/OS Oscillators remain neutral (All Exchange:+36.69 NYSE:+37.97 NASADQ:+36.79). However, all of the 21 day levels are now overbought (All Exchange:+74.96 NYSE:+93.08 NASDAQ:+56.9). And while the put/call ratios are a mixed bag, the Gambill Insider Buy/Sell Ratio remains quite cautionary at 6.2 as insiders remain active sellers of their stock now that the markets have recovered substantially from the correction lows. In contrast, the Rydex Ratio (contrary indicator) now finds the leveraged ETF traders very heavily leveraged long at 59.1. Thus the psychology portion of the data is showing some stress fractures in the “wall of worry”.
- In conclusion, while we remain near term “neutral” on the markets given the chart trends, we believe some clouds may be gathering for the near term outlook.
- For the intermediate term, we remain “neutral” as the forward 12 month p/e based on IBES forward 12 month earnings estimates has lifted to a 16.9 multiple and just shy of the level seen prior to the January correction.
- Forward 12 month earnings estimates for the SPX from IBES of $123.58 leave a 5.91% forward earnings yield on a 16.9 forward multiple.
SPX: 2,074/2,106
DJI: 17,541/8,114
COMPQX; 4,836/5,001
DJT: 7,921/8,239
MID: 1,451/1,491
RUT: 1,093/1,146
VALUA: 4,525/4,685