Short Term Outlook Still Neutral
Opinion: The indexes closed mixed on Friday with no major price movement. Internals were mixed as well as the A/D was positive but up/down volumes were negative on both exchanges. Most of them closed near their intraday lows. No important technical signals were generated while the data remains essentially neutral. As such our short term outlook is still neutral while remaining cautious for the intermediate term.
- On the charts, no major technical signals were generated as all of the indexes tested their near term resistance levels but failed to violate on a closing basis. Most closed near their intraday lows with the exception of the RUT (page 4) which closed midrange. The DJI (page 2) did close back above its long term uptrend line while the MID (page 4) closed above its short term downtrend line. The DJT (page 3) remains overbought on its stochastic. The net result of all of the action, in our opinion, left the near term resistance levels as a barrier and the technical picture neutral.
- The data is essentially neutral as well including all of the McClellan OB/OS Oscillators (NYSE:+28.03/-3.39 NASDAQ:-8.25/-37.17). The Equity Put/Call Ratio is a neutral .68 while the Total (contrary indicator) band OEX (smart money) Put/Call Ratios are canceling each other out with both heavy in puts at 1.11 and 2.2 respectively. Some slight positives are coming from margin debt levels that have declined from being up 15% y/y to up 9% y/y while insiders did pick up their buying a bit to 23.1 on the Gambill Insider Buy/Sell Ratio. It remains neutral.
- In conclusion, both the charts and data are suggesting some more near term neutral action, in our view, while the usual suspects of valuation, poor breadth and leverage levels being employed keep us cautious for the intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.97% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.68 versus the 10 Year Treasury yield of 2.21%.
SPX: 2,063/2,109
DJI: 17,376/17,795
COMPQX; 5,020/5,144
DJT: 8,127/8,444
MID: 1,454/1,505
RUT: 1,210/1,245