Short Term Outlook Remains Neutral To Positive
Opinion: Yesterday’s gains for the major equity markets came on light volume taking some of the shine off of the achievement. However, some technical improvements came on the charts while the data remains fairly evenly split. As such, we maintain our short term outlook for the equity indexes as neutral to positive.
- On the charts, as mentioned above, the advances came on light volume somewhat weakening the progress. However, we would note the DJT (page 3) closed above its near term resistance that is now adjusted to 7,714. Over the past several months, we have viewed the DJT as tending to be the leading index. As such, its move yesterday sends a generally positive tone for the markets as a whole, in our view. The SPX (page 2) closed marginally above resistance but not enough to actually qualify as a violation while the DJI (Page 2) touched resistance intraday but also failed to violate.
- Both the NASDAQ (page 3) and RUT (page 4) remain in their short term downtrends in spite of yesterday’s gains. So, as a group, we have reason to suspect there may be some further progress for the indexes based on the charts over the near term although, as is widely being observed, the large caps may continue to outperform the small caps.
- On the data, 3 of the 4 McClellan OB/OS Oscillators remain neutral (NYSE:+30.42/+53.36 NASDAQ:+18.89/-43.22) with only the NYSE 21 day mildly overbought. The bulk of the remaining data is neutral as well with the WST Ratio and its Composite at 49.1/121.0 along with a 1.2 OEX Put/Call Ratio (smart money), 13% Gambill Insider Buy/Sell Ratio and .76 Total Put/Call Ratio (contrary indicator). The Equity Put/Call Ratio (contrary indicator) is bearish at .47 as call buying by the crowd has increased. So, in a nutshell, the data is rather directionless sending no major signals as a group in either direction.
- In conclusion, the charts and data are suggesting there may be a bit more upside left for the indexes for the short term.
- ·For the longer term, we remain bullish on equities as they remain undervalued with a 6.51% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $121.91 versus the 10 Year Treasury yield of 2.72%.
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- SPX: 1,829/1,870
- DJI: 16,105/16,464
- NASDAQ: 4,050/4,175
- DJT: 7,407/7,714
- MID: 1,336/1,365
- RUT: 1,111/1,150