Short Term Outlook Remains “Neutral/Positive”
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose from the prior session on both the NYSE and NASDAQ. All closed at or near their intraday lows. While a couple of technical clouds appeared on the charts, as discussed below, no support levels were violated and, in fact, have yet to be challenged. The data has shifted form generally neutral readings to some conflicting signals. The net result of the data message, however, remains unchanged and lacking in a consensus of near term probable trajectory for the indexes. Thus our near term outlook remains “neutral/positive” while high valuation continues to suggest a “neutral” view for the more intermediate term.
· On the charts, all of the indexes closed lower with broadly negative internals as volumes rose. It qualifies as a day of institutional distribution. While all support levels held and no critical events occurred, a few technical clouds appeared on the horizon as the COMPQX (page 3) closed below its short term uptrend line while the DJT (page 3), RUT (page 4) and VALUA (page 5) yielded “bearish stochastic crossover signals”. Yet none of these events were of enough magnitude, in our opinion, to force a more negative view on the charts as a whole.
· The data which has been almost entirely neutral has changed a bit as it now is giving some opposing signals. The bulk of the 1 day McClellan OB/OS Oscillators remain “neutral” (All Exchange:-31.63 NYSE:-88.63 NASDAQ:-36.88) with the exception of the NYSE that is now oversold. The Total Put/Call Ratio (contrary indicator) show crowd fear increasing and long puts at 0.93 while the OEX Put/Call Ratio (smart money) finds the pros having increased their put exposure to a very bearish 1.78. The Gambill Insider Buy/Sell Ratio (14.3), Equity Put/Call Ratio (0.68) and WST Ratio/Composite (50.1/128.0) are all neutral. The net result is the weight of the data evidence remains too evenly balanced to offer a high probability projection of near term market direction.
· In conclusion, the weak performance of the indexes yesterday, combined with the current data readings and charts, was not technically sufficient to alter our near term “neutral/positive” view for the indexes while the intermediate term remains “neutral” as a result of historically high valuation.
· Forward 12 month earnings estimates for the SPX from IBES of $127.22 leave a 5.85% forward earnings yield on a 17.1 forward multiple.
SPX: 2,160/NA
DJI: 18,374/18,637
COMPQX: 5,160/NA
DJT: 7,795/7,974
MID: 1,534/NA
RUTNU: 1,221/1,266
VALUA: 4,904/NA