Psychology Remains Bullish
All of the indexes closed higher Thursday with positive internals on the NYSE and NASDDAQ as trading volumes declined from those of the prior session. No technical events of import were generated on the charts. The data is mostly neutral with the exception of the psychology readings that are still bullish. As such, we remain of the opinion that the indexes are going through a period of consolidation post the sizable rally off of the late October lows, leaving our near term outlook “neutral”.
- On the charts, all of the indexes closed higher yesterday with positive internals but on lighter volume than the preceding session. All closed at or near their intraday highs. However no resistance levels were violated, leaving all in their current sideways patterns with the exception of the DJI staying negative. The cumulative advance/decline lines remain negative for the All Exchange and NASDAQ while the NYSE’s A/D is neutral.
- Looking at the data, all of the McClellan OB/OS Oscillators are neutral (All Exchange:+13.31/-37.35 NYSE:+13.42/-23.01 NASDAQ:+15.25/-49.15). And while psychology has moderated to some degree, it remains bullish as the put/call ratios (contrary indicators) still find the crowd leaning towards puts on the Equity (0.73), Total (0.85) and ISEE (95) Put/Call Ratios. The Rydex Ratio (contrary indicator) still finds the leveraged ETF traders quite leveraged short at -1.51 while the Open Insider Buy/Sell Ratio saw a minor lift in insider buying interest at a neutral 79.2. 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, is below fair value with the forward 12 month earnings estimates for the SPX via Bloomberg of $171.52, leaving the forward 12 month p/e for the SPX at 15.9 versus the “rule of 20” implied fair value of a 16.9 multiple. The “earnings yield” stands at 6.28%.
- In conclusion, while we may see some further consolidation/retracement of the recent market rally, psychology and valuation remain encouraging. Thus we are keeping our near term outlook for the major equity indexes at “neutral”.
- SPX: 2,700/2,817
- DJI: 24,939/25,504
- Nasdaq: 7,108/7,401
- NDX: 6,770/6,993
- DJT: 10,347/10,746
- MID: 1,839/1,917
- Russell: 1,500/1,578
- VALUA: 5,936/6,243
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