Short Term Outlook Remains “Neutral/Positive”
Opinion: All of the indexes closed higher yesterday with positive internals as volumes rose from the prior session but remained relatively subdued. Most of the indexes closed near their intraday highs with one index seeing a minor technical improvement. The data scales continue to be fairly evenly balanced and not suggestive of near term market action probabilities. As such, our short term outlook continues to be one of “neutral/positive” while historically high forward valuation of the SPX leaves our intermediate term view in “neutral”.
· On the charts, all of the indexes closed higher with positive internals on slightly better volumes. Most closed near their intraday highs with the one exception of the DJI (page 2) that closed near its midpoint after testing but failing to overcome its short term downtrend line. The COMPQX (page 3) improved by closing back above its 50 DMA. The stochastic levels are starting to show some encouraging activity as well as most have seen the fast stochastic crossover the slow stochastic that theoretically suggests improving market strength. However, the real litmus test will be whether or not the indexes can surpass their near term resistance levels. That has yet to be achieved.
· The data scales remain fairly even. All of the McClellan OB/OS Oscillators are now neutral (All Exchange:-8.84/-2.7 NYSE:+7.73/+21.96 NASDAQ:-47.1/-26.66 along with the Equity Put/Call Ratio at 0.59. The OEX Put/Call Ratio (smart money) still finds the pros long puts and expecting weakness at 1.65 while the WST Ratio/Composite is a negative 79.5/175.5. A counterbalancing effect is coming from insiders as the Gambill Insider Buy/Sell Ratio, although remaining neutral, has strengthened to 17.1 and just short of turning bullish as insiders have been increasing their buying activity within recent market dips.
· In conclusion, our near term outlook continues to be “neutral/positive” as implied by our interpretation of the data and charts. The forward valuation of the SPX remaining near historically high levels keeps the intermediate term view at “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $128.87 leave a 6.01 forward earnings yield on a 16.6 forward multiple.
SPX: 2,120/2,171
DJI: 18,078/18,335
COMPQX; 5,172/5,274
DJT: 7,954/8,144
MID: 1,511/1,550
RUT: 1,211/1,238
VALUA: 4,812/4,968