Short Term Outlook Remains “Neutral/Negative”
Opinion: All of the indexes closed lower Friday with negative internals as volumes rose from the prior session. All closed near their intraday midpoints. Some further chart weakness was registered. The data has moderated to some degree. However, given the state of the charts and the somewhat balanced data scales, we continue to maintain our near term “neutral/negative” outlook for the indexes while valuation keeps our intermediate term view “neutral”.
- On the charts, all of the indexes closed lower Friday with negative internals on heavy trading volume registering another day of institutional distribution. Some further cracks were seen in the charts in the following fashion. The SPX (page 2) closed below near term support while the COMPQX (page 4) closed below its 50 DMA. Of possibly greater import, the DJT (page 3) closed below support as well as its intermediate term downtrend line. We continue to view the DJT as the leading index for the markets. All of the indexes remain on bearish stochastic crossover signals.
- The U.S. Dollar (page 9) broke below what we view as critical long term support that was discussed in some detail in Friday’s note. We remain of the opinion that Dollar weakness is likely to translate into stronger commodity prices given their historical inverse relationship.
- The data has moderated a bit, but not enough, in our opinion, to overpower the chart messages. All of the McClellan OB/OS Oscillators are neutral with the exception of the 21 day NYSE at an overbought +63.79. No oversold conditions have been registered with the OB/OS. The “crowd” has become more nervous noted by the Total and Equity Put/Call Ratios (contrary indicators) showing heavy put buying on their part at 1.16 and 0.86 respectively. The pros, however, are doing the opposite with the OEX Put/Call Ratio finding them buying calls at 0.74 in expectation of some strength.
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- In conclusion, although the data has moderated its former cautionary message to some degree, it is our opinion that the charts, seeing an increase in potentially negative technical signals, are carrying the more dominant influence. As such, we remain “neutral/negative” for the near term.
- For the intermediate term, we remain “neutral” as the forward 12 month p/e based on IBES forward 12 month earnings estimates for the SPX leaves a market multiple near the level seen prior to the January correction.
- Forward 12 month earnings estimates for the SPX from IBES of $123.42 leave a 5.98% forward earnings yield on a 16.7 forward multiple.
SPX: 2,044/2,091
DJI: 17,700/18,112
COMPQX; 4,773/4,915
DJT: 7,747/8,088
MID: 1,451/1,491
RUT: 1,107/1,162
VALUA: 4,550/4,741