Monday's market action certainly got a lot of investors' attention. But what may be most important was what happened on the Nasdaq 100 (NDX).
Cautionary action seen on the NDX (see chart below) warrants discussion. Four of the "FANG" stocks saw weakness on volume that, given their market weighting, pulled the NDX below its 50-day moving average and all the way down to its intermediate-term uptrend line. The weakness occurred on fairly heavy volume. Any further weakness there could, in our opinion, turn that picture more negative.
And since the FANG stocks and NDX have seen such intense buying interest over the past several months, a further break could be more problematic for the markets as a whole. However, we would stress that such a break has not yet happened.
Overall, the indices closed mixed with positive internals on the NYSE while Nasdaq internals were negative. Volumes rose on both exchanges from the prior session. The large-caps lost ground while two other indices made new closing highs. Until we see violations of the current near-term uptrends, we believe these trends should be respected until proven otherwise.
On the charts, the S&P 500 (see chart above), Dow Jones Industrials and Nasdaq Composite (see chart below) closed lower on the day while the Dow Transports, S&P MidCap 400, Russell 2000 and Value Line Arithmetic Index (VALUA) all advanced, with the Russell and VALUA making new closing highs.
Beyond the NDX, all of the near-term uptrends remain intact as do the cumulative advance/decline lines.
The data is mixed with a slightly cautionary tone. All of the McClellan 1-day OB/OS Oscillators are neutral while the 21-day readings are overbought (All Exchange:+33.39/+75.18 NYSE:+35.2/+87.78 NASDAQ:+33.7/+67.39). The Total and Equity Put/Call Ratios are neutral at 0.7 and 0.64, respectively, but the OEX Put/Call Ratio is very bearish at 3.73, as the pros have loaded the boat with puts. The Open Insider Buy/Sell Ratio is Neutral (38.3) as is the new AAII Bear/Bull Ratio (28.0/36.37).
Forward 12-month earnings estimates for the S&P 500 from Bloomberg of $137.37 per share leave a 5.56% forward earnings yield on an 18.2x forward multiple, over a decade high.
We remain of the opinion that the near-term uptrends of the indices should still be respected. However, the NDX should be closely monitored for possible negative impact.