Psychology Remains Somewhat Cautionary
Opinion: The majority of the indexes closed higher yesterday with the exception of the COMPQX closing lower. Internals were positive as volumes rose from the prior session. There were some positive and negative technical events on the charts that remain largely in their short term sideways ranges. Little change was seen in the data that now finds the psychology segment turning slightly cautionary. Thus, based on the charts and data, we remain near term “neutral” in our outlook while high valuation keeps us “neutral” for the intermediate term as well.
- On the charts, all of the indexes closed higher with the exception of the COMPQX (page 3) that closed lower and below its intermediate term uptrend line from the beginning of March. However, its support was not violated. The only other technical event of note was the RUT (page 4) that closed above short term resistance. The rest of the index charts remain confined within their current short term sideways patterns.
- Little changed regarding the data. All of the 1 day McClellan OB/OS Oscillators remain neutral (All Exchange:+2.95 NYSE:-1.69 NASDAQ:+7.98) with the NASDAQ 21 day slipping back to a neutral +46.68. The All Exchange and NYSE 21 day levels remain overbought at +64.96 and +82.28 respectively. Psychology data remains somewhat of a concern as the Gambill Insider Buy/Sell Ratio remains a bearish 6.2 as insiders continue selling and the pros measured by the OEX Put/Call Ratio (smart money) are weighted in puts at a bearish 1.68. The Rydex Ratio (contrary indicator) still shows the leveraged ETF traders heavily leveraged long at 59.1. As such, while the OB/OS short term data is neutral, some clouds are gathering in the psychology area.
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- In conclusion, the charts remain in their sideways patterns with data not quite tilted enough to the cautionary side to alter our near term “neutral” outlook for the indexes.
- For the intermediate term, we remain “neutral” as the forward 12 month p/e based on IBES forward 12 month earnings estimates has lifted to a 16.9 multiple and just shy of the level seen prior to the January correction.
- Forward 12 month earnings estimates for the SPX from IBES of $123.58 leave a 5.92% forward earnings yield on a 16.9 forward multiple.
SPX: 2,074/2,106
DJI: 17,541/8,114
COMPQX; 4,836/5,001
DJT: 7,921/8,239
MID: 1,451/1,491
RUT: 1,107/1,162
VALUA: 4,525/4,685