3 More Indices Have Flashed This Bearish Signal

 | May 25, 2018 | 11:18 AM EDT
  • Comment
  • Print Print
  • Print

The number of bearish stochastic crossover signals continues to increase. Three more indices have now flashed that warning sign, leaving just one hold out. Meanwhile, the 21-day OB/OS Oscillator is now overbought.

How concerning is all of this and does it affect our outlook for the major equity indices?

Let's break it all down for you.

Index Charts

The indices closed mixed Thursday with negative NYSE internals. The Nasdaq saw negative breadth but positive up/down volume. The Dow Transports, S&P MidCap 400 Index and Russell 2000 closed higher on the day as the rest declined and the Nasdaq Composite closed on resistance.

While no support or resistance levels were violated, the Dow Jones Industrial Average (see above), S&P MidCap 400 and Value Line Arithmetic Index flashed "bearish stochastic crossover signals," leaving only the S&P 500 (see below) not in that condition.

This does cast a bit of a cloud, considering that over the past several months said signals have been followed by varying degrees of market weakness, but they should be used for confirmation purposes. We would need to see further price action weakness for the signals to become more pertinent.

The Value Line, Russell and Nasdaq 100 indices are still in near-term uptrends with the rest neutral. All of the cumulative advance/decline lines are positive and above their 50-day moving averages.

Data

While the 1-day McClellan Overbought/Oversold Oscillators are neutral, all of the 21-day levels have slipped into overbought conditions (All Exchange:+16.43/+54.36 NYSE:+13.67/+59.87 NASDA:+19.86/+51.75).

The Equity Put/Call Ratio (0.64) and OpenInsider Buy/Sell Ratio (40.6) are neutral with the Total P/C (0.87) and OEX P/C (0.85) bullish.

Valuation

The forward P/E multiple for the S&P 500 based on 12-month consensus earnings estimates from Bloomberg of $163.24 per share is 16.7x versus the "rule of 20" implied fair value of 17.0x.

Our Outlook

While we see some caution signaled by the stochastic levels and 21-day OB/OS, with valuation close to fair value, not enough of a shift has occurred on the charts and data to warrant a change in our current "neutral/positive" outlook for the major equity indices.

Columnist Conversations

Barrons.com noted significant insider purchases in the beat-up shares of Newell (NWL). The stock is...
CEO Christian Brickman couldn't resist owning more Sally Beauty Holdings (SBH) when it briefly went below $14 ...
Move over Boca Biff - there is a new sheriff in town...Chance Walker! My conversation with Chance - high abov...
Oil tested its 200-day moving average this week, but the June 18 low of $63.59 a barrel held. As a result, we...

BEST IDEAS

REAL MONEY'S BEST IDEAS

News Breaks

Powered by

COLUMNIST TWEETS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.