Short-Term Outlook Remains “Neutral/Positive”
Opinion
The indexes closed mixed yesterday with positive internals but lower trading volumes on both the NYSE and NASDAQ. Movements in both directions were modest with all closing near their intraday lows. No technical events of import were generated although we now see an interesting diversion regarding market breadth, discussed below. The data remains largely neutral although a few green lights have emerged. As such, our near term outlook for the major indexes remains “neutral/positive” while historically high valuation keeps our intermediate term view “neutral”.
- On the charts, the indexes closed mixed yesterday with the MID (page 4), RUT (page 4) and VALUA (page 5) closing modestly higher as the rest posted minor losses. Of some interest is the market internals were positive, although volumes declined from the prior session. No technical signals of import were generated, in our opinion.
- We would note an interesting dynamic in terms of market breadth that echoes yesterday’s action. Overall market breadth as noted by the All Exchange Advance/Decline line on page 6, remains in its uptrend as seen by the green uptrend line. However, the % of SPX stocks trading above their 50 DMAs on page 9 finds itself in a near term downtrend. Our interpretation of this divergence is that high SPX valuation may be starting to catch up with itself as money rotates to the small and mid-cap issues that had been underperforming. We view the overall positive market breadth as encouraging.
- The data continues to remain largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-26.37/+23.48 NYSE:-35.56/+32.33 NASDAQ:-15.48/15.21). The WST Ratio and its Composite are also neutral at 49.0/126.8. Some positive signals are coming from the put/call ratios as the crowd is now long puts and nervous via the Total and Equity P/C Ratios (contrary indicators) at 1.15 and 0.75. In contrast, the OEX Put/Call Ratio (smart money) finds the pros now long calls at a bullish 0.78. Insiders have inched up their buying activity but remain neutral with a 15.3 Gambill Insider Buy/Sell Ratio while the new AAII Bear/Bull Ratio (contrary indicator) is evenly balanced at 29.64/29.42. So the data has a slightly positive tilt this morning, but not to a significant degree.
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- In conclusion, the charts and data continue, in our opinion, to suggest a near term “neutral/positive” probability for the indexes while valuation keeps our intermediate term view “neutral”.