Near-Term Outlook Turns “Neutral”
All of the major equity indexes closed notably lower Tuesday with negative internals on the NSYE and NASDAQ as volumes rose on both exchanges from the prior session. The charts saw multiple breaks of support as well as uptrend lines while the data, for the most part, is neutral. While our note last Tuesday morning did suggest some pause/retracement of the recent rally, we were not expecting it to occur quite so rapidly and to such a degree. As such, given the current state of the charts and data, we are forced by our discipline to shift our near term outlook for “neutral/positive” to “neutral”.
- On the charts, all of the indexes closed notably lower Tuesday with negative internals on higher volume. All of the index charts closed below their near term support levels (adjusted below) and short term uptrend lines. The 50 DMAs were also violated on the SPX (page 2), DJI (page 2), DJT (page 4) and MID (page 4). Bearish stochastic crossover signals were registered on the SPX, DJI, DJT, MID and VALUA (page 5). As such, all of the near term trends have turned neutral from positive as have the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
- The bulk of the data is neutral including all of the McClellan OB/OS Oscillators that were overbought on Tuesday’s open (All Exchange:+4.16/-18.14 NYSE:+15.14/-5.63 NASDAQ:+11.74/-28.91). The Open Insider Buy/Sell Ratio (83.1) is neutral as well. One positive data point has come from the AAII Bear/Bull Ratio (contrary indicator) that now finds bears outnumbering bulls by a decent margin at a bullish 40.67/31.0. Seasonality remains encouraging has the November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation, assuming current estimates hold, was pushed well below fair value with the forward 12-month earnings estimates for the SPX via Bloomberg of $170.98, leaving the forward 12-month p/e for the SPX at 15.8 versus the “rule of 20” implied fair value of a 17.1 multiple. The “earnings yield” stands at 6.33%.
- In conclusion, while we were expecting some retracement of the recent rally, we were not expecting it to be so rapid and violent. Given the current state of the charts and data, we are required by our discipline to shift our near term outlook from “neutral/positive” to “neutral”.
- : 2,691/2,272
- : 24,894/25,507
- : 7,133/7,335
- : 6,715/6,953
- : 10,300/10,655
- : 1,823/1,878
- : 1,469/1,531
- VALUA: 5,886/6,056