Will the Transports Stay on the Right Track After Being 'Hammered'?

 | Jun 29, 2018 | 11:03 AM EDT
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It's hammer time. On the Transports' chart that is.

Most of the equity indices closed higher Thursday with the exception of the Dow Jones Transportation Index, which posted a decline. Indeed, the Transports saw what we believe to be a "hammer" on its chart (more on that below).

Despite the overall strength in stocks, it was not sufficient to alter the weight of the chart and data evidence and shift our current near term "neutral/negative" outlook for the major equity indices.

Internals were positive on the NYSE and NASDAQ Thursday as volumes declined on both exchanges from the prior session. All closed near their intraday trading highs. However, no resistance levels or trend lines were violated on the charts, leaving the near-term trends neutral on the Russell 2000 and Value Line Arithmetic Index, with the rest negative.

The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative but above their 50-day moving averages.

Source: Worden

Two minor improvements were seen as the S&P MidCap 400 Index managed to close back above its 50 DMA while the Dow Transports saw what we believe to be a "hammer" registered on its chart (see above). The "hammer" theoretically implies a near-term washout of selling pressure that may result in a reflex rally.

We would also note all of the stochastic levels are oversold. Yet they have not shifted to bullish crossover signals at this point that would suggest some degree of relief available.

The data remains mixed. The All Exchange and NASDAQ 21-day McClellan Overbought/Oversold Oscillators are oversold but the rest remain neutral (All Exchange:+6.9/-57.14 NYSE:+20.5/-46.58 NASDAQ:-2.43/-70.1). We usually see oversold conditions on the 1-day levels coincident with correction lows.

The OpenInsider Buy/Sell Ratio has improved to 52.7 but remains neutral as is the Equity Put/Call Ratio at 0.65. The Total P/C (contrary indicator and OEX P/C are bullish at 1.32 and 0.62, respectively, but the Rydex Ratio (contrary indicator) still finds the leveraged ETF traders very leveraged long at 1.62.

The S&P 500 is trading at a P/E multiple of 16.6x based on the forward 12 month consensus earnings estimates from Bloomberg of $163.57 per share, versus the "rule of 20" implied fair value of 17.2x.

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