Opinion: In spite of the warnings coming from the data dashboard, the indexes closed higher yesterday, post the Fed’s decision to leave rates unchanged, with positive internals as volumes rose from the prior session. All closed at or near their intraday highs. Some resistance levels were violated on the charts while some intermediate term downtrend lines were tested. Most of the data is unavailable this morning but we suspect their prior warnings were relatively unmoved. We remain “neutral/negative” for the near term given the extension of the current rally and available data. The intermediate term remains “neutral/positive” given improvement in breadth but high valuation is starting to enter the picture.
- On the charts, all of the indexes closed higher with positive breadth and volumes. The SPX (page 2), DJI (page 2) and DJT (page 3) all closed above their near term resistance levels adjusted below. However, the intermediate term downtrends for the SPX and DJI were tested on a closing basis that, assuming those trends are valid until violated, may prove to be a difficult hurdle going forward. The rest of the charts remain unchanged.
- One other chart is worthy of comment this morning, in our opinion, that being the U.S. dollar as viewed via the NYSE:UUP ETF (page 9). Yesterday’s Fed decision created Dollar weakness the intensity of which has not been seen in several weeks. Support was broken on heavy volume after making a series of lower highs since early December. As the Dollar and commodity prices are inversely correlated, the break in the dollar could put further strength in improving commodity pricing.
- While most of the data is unavailable this morning, we suspect yesterday’s activity was not vibrant enough to create much change. As well, the WST Ratio and its Composite are back on a “bear alert” signal at 79.6 and 188.7. Granted the data has not been prescient of late, in spite of the stretch in the rally. Nonetheless, it still implies a greater level of risk versus reward over the near term. Breadth remains encouraging for the intermediate term although valuation is approaching levels of some concern.
- Forward 12 month earnings estimates for the SPX from IBES of $123.27 leave a 6.1% forward earnings yield on a 16.4 forward multiple.
SPX: 1,993/2,042
DJI: 17,009/17,418
COMPQX; 4,612/4,787
DJT: 7,536/7,885
MID: 1,367/1,415
RUT: 1,035/1,107
VALUA: 4,320/4,457