Data Mostly Neutral
Opinion: All of the indexes closed higher Friday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session on both exchanges. While two 50 DMAs were reclaimed on the charts, none of the resistance levels established from Wednesday’s drops were violated. The bulk of the data remains neutral and non-directive in near term implications.. As such, we are maintaining our near term “negative” outlook for the major equity indexes.
- On the charts, all of the indexes closed higher Friday with positive internals as volumes dipped. Both the SPX (page 2) and DJI (page 2) managed to close back above their 50 DMAs but were unable to violate resistance levels, although tested on an intraday basis, established post Wednesday’s notable selloff. All of the indexes are in short term downtrends by our work while the advance/decline lines for the All Exchange and NASDAQ remain negative with the NYSE A/D neutral. Post breaks of support as experienced on Wednesday, it is not uncommon for charts to test their new resistance levels before continuing their declines as said resistance levels can encounter large amounts of supply eager to unload at those levels. We suspect that may be the case currently as the volumes on Wednesday were above normal. However, violations of resistance are possible.
- The data is not very instructive currently as all of the McClellan OB/OS Oscillators remain neutral (All Exchange:-29.06/+10.5 NYSE:-7.97/+23.82 NASDAQ:-1.18/+17.5) as is the Equity Put/Call Ratio (0.62) and Open Insider Buy/Sell Ratio (55.1). The Total Put/Call Ratio (contrary indicator) at 0.99 and OEX Put/Call Ratio at 1.46 are cancelling each other out as the crowd is leaning toward puts while the pros remain long puts at 1.46.
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- In conclusion, while we may see a bit more strength as the indexes test new levels of technical resistance, we remain of the opinion that last Wednesday’s sharp declines on volume can be reasonably be interpreted as sell signals. Poor internal breadth resulting in a few high profile names masking internal weakness while valuations remain near historic highs are issues not to be ignored. We are therefore keeping our near term market outlook as “negative”.
- Forward 12 month earnings estimates for the SPX from IBES of $134.56 leave a 5.63 forward earnings yield on a 17.6 forward multiple, near a decade high.
SPX: 2,354/2,390
DJI: 20,553/20,905
COMPQX; 5,908/6,102
DJT: 8,784/9,091
MID: 1,692/1,727
RTY: 1,350/1,376
VALUA: 5,368/5,466