Market Conditions Have Us Looking Over Our Shoulder

 | May 04, 2018 | 11:06 AM EDT
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While the major equity indices have not actually registered enough of a shift to change our view, certan current cautionary aspects have us looking over our shoulder in that regard -- namely weakening breadth and general tone. As such, our "neutral" near-term stance is tenuous at best.

Let's examine the charts, data and valuation metrics.

Charts

The only index to close higher Thursday was the Dow Jones Industrial Average (see below) after recovering from a break of support on an intraday basis. The rest saw losses registered despite their rallies well above their intraday lows.

Source: Worden

In spite of afternoon strength, breadth remained negative as well as up/down volumes. The Value Line Arithmetic Index closed below support while the Russell 2000 (see below) closed on support but back below its 50-day moving average. The S&P MidCap 400 Index closed on support as well.

Source: Bloomberg

Thursday's intraday rally appeared weak regarding participation, suggesting that while supports held, they may have become more vulnerable. The cumulative advance/decline lines for the All Exchange and NYSE remain neutral with that of the NASDAQ negative.

Data

The data is a mix of neutral and positive signals.

All of the McClellan OB/OS Oscillators are neutral (All Exchange:-25.34/+2.1 NYSE:-26.87/+6.83 NASDAQ:-27.43/-3.26) as is the OpenInsider Buy/Sell Ratio at 42.7. All of the put/call ratios are bullish, however, for the Total (1.02) Equity (0.76) and OEX (0.34).

We have been seeing generally positive signals from the options data lately, but it has been insufficient in terms of actual positive response from the markets.

Valuation

The forward 12-month P/E multiple for the S&P 500 based on 12-month consensus earnings estimates from Bloomberg of $162.40 per share is 16.2x, versus the "rule of 20" implied fair value of 17.0x.

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