Data Remains Largely Neutral
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose from the prior session. All closed at or near their intraday lows. However, no support levels were violated on the charts. The data remains almost entirely neutral and continues to lack an indication of the probabilities of market movement, in either direction, over the near term. We are shifting our near term outlook for the indexes from “neutral/positive” to “neutral” largely due to some issued discussed below regarding the charts. Our intermediate term view continues to be “neutral” as a result of forward valuation of the SPX remaining near historically high levels.
On the charts, all of the indexes closed lower yesterday with negative internal action on rising volumes compared to the prior session. All closed near their intraday lows. The DJI (page 2) tested its intermediate term series of lower highs and failed to violate as did the DJT (page 3) and MID (page 4) after testing their shorter term series of lower highs. All of their support levels remain intact. However, the inability of the indexes to violate their series of lower highs discussed above is prompting us to shift our short term outlook to “neutral”. At a minimum, we would need to see violations of the lower highs in order to become more constructive in our technical outlook.The one exception on the charts is the COMPQX (page 3) that closed above its 50 DMA Monday and challenged its resistance level at the same time. We would also note the weakening of the advance/decline lines on the All Exchange and NASDAQ that are brining breadth into the debate.
The data continues to leave us without any strong directional implications as has been the case over the past several weeks during the market lull. All of the McClellan OB/OS Oscillators remain neutral (All Exchange:-22.33/-20.02 NYSE:-10.75/-10.86 NASDAQ:-36.42/-27.35) along with the Equity Put/Call Ratio (0.69) and Gambill Insider Buy/Sell Ratio (12.7). Some minor encouragement is seen in the OEX Put/Call Ratio (smart money) that found the pros very heavy in puts and expecting weakness yesterday morning that has now shifted to a neutral 1.24.
In conclusion, the chart issues discussed above are causing us to turn “neutral” in our short term outlook for the major equity indexes while the extended forward multiple for the SPX keeps us “neutral” for the intermediate term.
Forward 12 month earnings estimates for the SPX from IBES of $128.91 leave a 6.01 forward earnings yield on a 16.6 forward multiple.
SPX: 2,120/2,171
DJI: 18,078/18,335
COMPQX; 5,223/5,327
DJT: 7,954/8,144
MID: 1,511/1,550
RUT: 1,211/1,238
VALUA: 4,812/4,968