Short-Term Outlook Remains Neutral
Opinion
All of the indexes closed lower yesterday with broadly negative internals as volumes rose versus the prior session. All closed reasonably above their intraday lows post comments from OPEC. Importantly, all of the hammer bottoms, discussed yesterday, held although two indexes saw breaks of support. The data is a mixed bag but leaning more to positive signals, especially regarding investor sentiment. Yet we find ourselves staying with a neutral near term outlook for the indexes. Breadth remains quite negative keeping us cautious for the more intermediate term.
- All of the indexes closed lower yesterday with broadly negative internals. Yet there was a silver lining as all closed well off of their intraday lows while the SPX (page 2), DJI (page 2) and COMPQX all saw successful tests of their “hammer bottom” lows discussed in yesterday’s note. The DJT (page 3) tested support but closed below its short term uptrend line. Neither the MID (page 4) or VALUA (page 5) came close to their hammer lows but the VALUA did close below near term support.
- The RUT (page 4) continues to suffer more than the rest as it broke support as well as its hammer bottom low. That may be the largest contributing factor to the continuing negative trend in market breadth for all of the indexes, except the NYSE, which continues to cause us intermediate term concern.
- The data has turned a bit more positive as all of the McClellan OB/OS Oscillators, with the exception of the NASDAQ 1 day at -49.7, are in oversold territory. The OEX Put/Call Ratio (smart money) is a mildly bullish 0.84 while the new AAII Bear/Bull Ratio (contrary indicator) shows the crowd at very high levels of bearish opinion. The current reading of 48.7/19.24 shows bears totally swamping bulls. At the market highs of last June, those numbers were reversed. We now find bearish sentiment at its highest since early 2009 that marked the market lows of the financial crisis. It adds encouragement. However, breadth needs to improve notably to turn the intermediate outlook positive.
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- In conclusion, while there may be some short term lift, resistance levels and downtrends need to be violated to improve the short term outlook while current poor breadth keeps us cautious for the intermediate term.
- Forward 12 month earnings estimates for the SPX from IBES is $123.91 leaving a 6.77% forward earnings yield with a 14.8 forward multiple.
- SPX: 1,813/1,878
- DJI: 15,975/16,177
- NASDAQ; 4,211/4,434
- DJT: 6,790/7,022
- MID: 1,216/1,290
- Russell: 923/985
- VALUA: 3,713/3,959