Short-Term Outlook Remains Neutral/Negative
Opinion
Yes, we are aware our message sounds a bit like a broken record. However, post yesterday’s gains, nothing has actually changed to alter our near term outlook for the major equity indexes of neutral/negative. No short term trends were reversed and while breadth was positive on both exchanges, NASDAQ volume once again was lower versus the prior session’s selloff. The data remains largely neutral with a few cautionary points.
- On the charts, yesterday’s rally actually resulted in no shift in the current trends. The SPX (page 2) is still in a sideways pattern from 8/26 along with that of the DJI (page 2). The DJI did close just shy of resistance yesterday. The COMPQX (page 3) remains in a short term downtrend from the 9/3 intraday high while the DJT is flat over the last 9 sessions. Finally, both the MID (page 4) and RUT (page 4) remain in short term downtrends from their 9/3 highs. So in spite of the nice numbers put up by the indexes yesterday, there was no change in the current short term chart patterns for the indexes. We would also note the All-Exchange and NASDAQ A/Ds remain below their 50 DMAs suggesting poor breadth.
- On the data, only the NYSE 1 day McClellan OB/OS Oscillator is still oversold at -60.8. Its 21 day is a neutral +10.86 with the NASDAQ levels neutral as well (-42.45/-2.7). The OEX Put/Call Ratio (smart money) has returned to a neutral 1.37 while the Rydex Ratio (contrary indicator) still shows the leveraged ETF traders overly bullish at 58.1. Finally, the WST Ratio and its Composite are at warning levels of 71.7 and 162.9. So the data still has a slightly negative edge, in our opinion.
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- In conclusion, the gyrations of the equity indexes over the past 2 weeks have left the charts unchanged from their neutral to negative short term trends while the data remains slightly cautionary.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.43% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $128.46 versus the 10 Year Treasury yield of 2.59%.
- SPX: 1,979/???
- DJI: 16,980/17,140
- NASDAQ: 4,453/4,594
- DJT: 8,294/???
- MID: 1,410/1,427
- RUT: 1,137/1,158