Most Data Neutral
Opinion
The recent shift in our short term outlook suggesting the equity markets had likely seen the bulk of the recent rally completed proved inaccurate as the markets rose significantly yesterday with positive internals and overall volumes. The charts saw improvements across the board resulting in adjustments to near term support/resistance levels listed below. With the bulk of the data remaining neutral, a bit more lift may result in tests of new resistance levels. However, our intermediate term outlook remains cautionary as falling SPX estimates have pushed valuation to the top end of historic ranges while sentiment continues to concern us.
- On the charts, all of the indexes, with the exception of the RUT (page 4), closed above their short term resistance levels while all also closed above their 50 DMAs. The SPX (page 2), DJI (page 2), COMPQX (page 3), MID (page 4) and RUT all closed above their recent short term downtrend lines as well. Internals were positive while volumes rose on both exchanges. As such, there were multiple improvements in the charts. The data discussed below suggests to us the new near term resistance levels on the charts may be tested as most of said data is neutral.
- On the data, the McClellan OB/OS Oscillators remain neutral in spite of yesterday’s notable gains (NYSE:+40.8/+27.7 NASDAQ:-3.92/-18.74). The Equity and OEX Put/Call Ratios are neutral as well at .58 and 1.06 as the Gambill Insider Buy/Sell Ratio is a neutral 9.5. The only cautionary signals are coming from the WST Ratio and its Composite (74.2/202.5) and the Rydex Ratio (contrary indicator) still showing the leveraged long ETF traders overextended at 65.8. The new AAII Bear/Bull Ratio (contrary indicator) does show the crowd lessening its prior extreme bullish sentiment to a neutral 30.79/37.14. As such, the data as a whole is not presenting any major headwinds for the short term, in our view.
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- Yet we remain disturbed regarding the intermediate term as the forward 12 month earnings estimates for the SPX have been recently slashed to $124.62, yielding a 16.6 forward multiple at the top end of historic valuations.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.04% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $124.62 versus the U.S. 10-Year yield of 1.9%.
- S&P 500: 2,021/2/072
- Dow Jones 30: 17,507/17,900
- NASDAQ Composite: 4,600/4,771
- Dow Jones Transportation: 8,782/9,184
- S&P Midcap 400: 1,411/1,468
- Russell 2000: 1,154/1,199