The backdrop for these earnings reports is a stock market that remains under the cloud of a ValuEngine valuation warning with 75.8% of all stocks overvalued, 42.5% by 20% or more. I still give the retail-wholesale sector an overweight rating, but the sector is 23.6% overvalued.
These stocks will be sensitive to earnings disappointments given the deterioration of the underlying technicals for the overall stock market.
The Nasdaq ended last week below my monthly pivot at 3663, which is just one negative technical divergence. However, the Nasdaq is also the only major average that did not end last week below its five-week modified moving average at 3573.Dow industrials and Dow transports are the only major averages with 12x3x3 weekly slow stochastic readings declining below 80.00. The others remain overbought. To confirm the early-August highs as cycle highs all five major averages need to be in sync technically. Weekly closes need to be below the five-week MMAs at 15,306 Dow industrials, 1666.8 S&P 500, 3573 Nasdaq, 6426 Dow transports and 1026.03 Russell 2000 with all momentum readings declining below 80.00. Dow industrials and Dow transports ended last week with negative weekly chart profiles. The downside this quarter and into year end are my quarterly and annual value levels at 14,288/12,696 Dow industrials, 1525.6/1348.3 S&P 500, 3284/2806 Nasdaq, 5348/5469 Dow transports, and 863.05/860.25 / 809.54 Russell 2000. With the S&P 500, Nasdaq and Russell 2000 not yet negative, it will take at least another week of lower markets to confirm the early-August highs as cycle highs. If all five major averages do not shift to negative on their weekly charts the upside is to my semiannual risky levels at 16,490 Dow industrials, 1743.5 S&P 500, 3759 Nasdaq, 7104 Dow transports and 1089.42 Russell 2000.
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