Near-Term Outlook Turns “Neutral/Negative”
Opinion
All of the indexes closed higher yesterday with positive internals on the NYSE and NASDAQ. Volumes were higher on the NYSE versus the prior session while NASDAQ volumes were flat. Several improvements were registered on the charts in terms of trend and DMAs. The data remains largely neutral. So in spite of our concerns regarding forward valuation, advisor complacency and high margin debt, the charts are the ultimate barometer that, due to their improvements, are causing a shift in our short term outlook for the major equity indexes from “negative” to “neutral/negative”.
- All of the indexes closed higher yesterday with broadly positive internals in response to a resurrection of healthcare discussions in Congress. Several chart improvements were achieved in the following manner. The DJT (page 3) closed above near term resistance and its short term downtrend line. It continues to trade below its 50 DMA. The MID (page 4) RTY (page 4) and VALUA (page 5) closed above their short term downtrend lines and 50 DMAs. As such, we now find 5 of the7 indexes in neutral sideways patters. The two outliers are the SPX (page 2) and DJI (page 2) that remain in their short term downtrends. As well, the cumulative advance/decline lines for the All Exchange and NYSE are now positive and above their 50 DMAs while the NASDAQ A/D is now neutral. We note, however, that while the SPX is fairly close to its all-time high, only 45.5% of its components are trading above their 50 DMAs (page 9).
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- The data continues to send a rather neutral message. All of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE 21 day now in overbought territory (All Exchange:+13.6/+29.0 NYSE:+23.91/+67.56 NASDAQ:+34.52/+21.47). The Equity and OEX Put/Call Ratios are neutral at 0.68 and 1.28 as is the Oppenheimer Buy/Sell ratio showing insider activity fairly evenly balanced at 57.9. The Total Put/Call Ratio (contrary indicator) finds the crowd a bit more nervous and buying some puts at 0.90.
- In conclusion, while our concerns regarding extended forward valuation of the SPX, investment advisors showing a high degree of complacency and extensive use of margin debt remain disconcerting; we are bound by our discipline to honor the chart action that has now turned “neutral/negative” from its former “negative” implications.