Remaining Intermediate Term Cautious
Opinion: All of the indexes closed higher yesterday with positive internals and near their intraday highs. Volumes declined from the prior session. Breadth was positive on both exchanges but less so on the NASDAQ. There were some improvements on the charts yet they are not out of the proverbial woods, in our view. The data has now turned largely neutral. So given the current state of the evidence, we believe the bulk of the bounce has transpired thus moving our short term outlook to neutral. We remain cautious for the intermediate term.
- On the charts, The SPX (page 2) managed to close above its 50 DMA, near term resistance and its short term downtrend line. However, new resistance is just a few points above the close, limiting upside in our view. Less than half (49.8%) of its components are above their 50 DMAs.
- The DJI closed above its short term downtrend line but remains below resistance. The COMPQX (page 3) closed above its intermediate term uptrend line but remains below resistance and its short term downtrend line.
- The DJT (page 3) had the best technical change as it broke above resistance, its 50 DMA and its intermediate term downtrend line for the first time since last March.
- The only improvement on the MID and RUT (page 4) was both flashing a bullish stochastic crossover signal. In spite of the chart improvements, there was not enough of a shift to alter our intermediate term concerns.
- We still suspect that rallies to resistance are likely to eventually fail.
- The data has turned almost entirely neutral including the McClellan OB/OS Oscillators (NYSE:+4.26/+2.45 NASDAQ:-36.99/-33.55). The prior oversold conditions have been relieved. Both the Equity and OEX Put/Call Ratios are neutral as well at .62 and 1.25. The only negative signal is coming from the WST Ratio and its Composite at 78.0 and 159.6. We would also note that the Gambill Insider Buy/Sell Ratio, although showing some recent buying near the recent lows, saw its highest level of selling since last January at the rally peak at 5.4. It is currently neutral at 17.7.
- In conclusion, we now view the near term market outlook as neutral given the data and chart status while our intermediate term concerns persist.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.96% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.68 versus the 10 Year Treasury yield of 2.28%.
SPX: 2,063/2,109
DJI: 17,376/17/842
COMPQX; 5,020/5,144
DJT: 8,127/8,444
MID: 1,454/1,505
RUT: 1,210/1,245