How Many Times Can the Dow 'Pass' This Test?

 | May 02, 2018 | 11:25 AM EDT
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While it was encouraging to see the indices rally Tuesday to well above their intraday lows, investors shouldn't get too excited.

We remain a bit concerned about the recent deterioration in market breadth and have yet to see enough evidence to change our near-term "neutral" outlook.

Index Charts

The indices closed mixed Tuesday with the Dow Jones Industrial Average (see below) and Dow Transports closing lower on the day and the rest managing to post advances.

Source: Worden

Looking under the hood, while it was encouraging to see the indices rally to well above their intraday lows, the fact that overall volumes were lighter on both the NYSE and Nasdaq and the NYSE seeing positive breadth but negative up/down volume tarnishes their achievements to some degree.

Source: Bloomberg

The Russell 2000 (see above) did manage to close back above its 50-day moving average but remains in a neutral trend as do all of the others with the exception of the DJIA, which is still technically in a short-term downtrend.

Speaking of the DJIA (see above), we would note that it saw another test of support for the third time in the past six sessions at the 23,825 level. While it has held to this point, we believe any break of support would likely take on greater significance. 

Market breadth remains of some concern as the Nasdaq cumulative advance/decline line remains negative and below its 50 DMA. The A/Ds for the All Exchange and NYSE are still neutral and above their 50 DMAs.


The data remains largely neutral with some slight encouragement from a few of the put/call ratios.

Neutral data includes all of the McClellan Overbought/Oversold Oscillators (All Exchange:-12.94/+31.69 NYSE:-12.88/+38.65 NASDAQ:-15.44/+26.688).

The Equity Put/Call Ratio (0.68) and OpenInsider Buy/Sell Ratio (45.5) are neutral as well, while the Total P/C (1.11) and OEX P/C (0.51) are bullish as of the close.


The forward 12-month P/E multiple for the S&P 500 based on 12-month consensus earnings estimates from Bloomberg of $162.09 per share is 16.4x multiple versus the "rule of 20" implied fair value of 17.0x.

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