More Supports Violated/Stochastic Levels Not Yet Oversold

More Supports Violated

Stochastic Levels Not Yet Oversold

The bulk of the indexes closed lower Wednesday with the one exception of the DJI posting a fractional gain. Internals were negative on the NASDAQ and NYSE as volumes declined on both exchanges from the prior session. Three index charts broke below their respective support levels leaving none of the charts in near term uptrends. The data remains mixed. As such, we are maintaining our near term “neutral” outlook for the major equity indexes although we would note tomorrow’s trade talks could have significant impact in either direction based on their outcome.

On the charts, only the DJI (page 2) managed to close fractionally higher yesterday as the rest posted losses.

• Internals were negative on declining volume. Deterioration occurred on the MID (page 4), RTY (page 5) and VALUA (page 5) as all broke below their near term support levels.
• So we now find the DJI, MID and VALUA in negative short term trends with the rest neutral.
• While having weakened a bit further, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain neutral.
• We would note, while not significant, none of the stochastic levels for the indexes have reached oversold territory.

The data is mixed.

• The 1 day McClellan OB/OS Oscillators for the All Exchange and NYSE are in oversold territory while the NASDAQ’s remains neutral (All Exchange:-55.04 NYSE:-71.0 NASDAQ:-43.18).
• Sentiment indicators are still somewhat disturbing as insiders are still backing away from the buying table as it has slipped to 28.6% and just shy of turning negative while the detrended Rydex Ratio (contrary indicator) improved slightly to a mildly bearish 0.76.
• The % of SPX stocks trading above their 50 DMAs dropped to 51.5% but remains neutral.
• The 12 month forward consensus earnings estimate from Bloomberg for the SPX now stands at $171.64, leaving the forward p/e at a 16.8 multiple while the “rule of twenty” finds fair value at 17.5, easing some of our prior valuation concerns. The earnings yield stands at 5.96%.

In conclusion, we are maintaining our near term outlook for the major equity indexes given the state of the charts and data. However, we are in the unusual position where an event (trade talks) could have significant impact in either direction. This has led us to a more cautionary tone.

• SPX: 2,834/2,900
• DJI: 25,673/26,447
• NASDAQ: 7,727/8,099
• NDX: 7,587/7,724
• DJT: 10,610/11,007
• MID: 1,927/1,979
• Russell: 1,559/1,614
• VALUA: 6,219/6,405

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Written By: Guy S. Ortmann, CMT