Data Mostly Neutral
Opinion: The indexes closed lower yesterday with negative internals and slightly higher trading volumes. Prices closed at or near their lows of the day. A few of the charts saw some marginal weakening while the data remains essentially neutral. As such, our short term outlook is neutral to slightly negative while valuation keeps us cautionary for the intermediate term.
- On the charts, the morning gains gave way at midday and continued lower for the balance of the session with negative internals. Only two chart events took place worthy of comment. The SPX (page 2) closed below its short term uptrend line while the DJT (page 3) closed below its 50 DMA. The DJT also closed fractionally below support but not enough to qualify as an important violation as said support does have some degree of “wiggle room”. So the points noted, although negative, are not significant enough, in our opinion, to raise strong warning chart signals although they do cast a few shadows.
- The data remains largely neutral including the McClellan OB/OS Oscillators (NYSE:+19.96/+15.11 NASDAQ:+17.8/+10.28). The Put/Call Ratios are sending a slightly positive message as the Total and Equity P/C Ratios (contrary indicators) show the crowd increasing put exposure at 1.04 and .7 respectively while the OEX P/C Ratio (smart money) shows the pros slightly weighted to the call side at .92. The Gambill Insider Buy/Sell Ratio, although remaining neutral, does reveal insiders as slightly stepping up their selling activity at 10.6. As such, the scales for the data remain fairly well balanced with no strong directional short term implications.
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- Valuation continues to be stretched and cautionary for the intermediate term as the forward 12 month p/e for the SPX based on forward 12 month eps estimates from First Call leave it near a decade high at 17.0X.
- In conclusion, the action in the DJT, which we still regard as the leading index, is sending a slightly negative message for the rest of the indexes while the data is essentially neutral. They are thus suggesting a neutral/negative near term outlook.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.89% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $122.68 versus the 10 Year Treasury yield of 1.88%.
SPX: 2,064/2,109
DJI: 17,642/18,130
COMPQX: 4,938/???
DJT: 8,912/9,182
MID: 1,496/???
RUT: 1,236/???