Data Remains Bullish
All of the major equity indexes managed to post gains Friday with positive internals as volumes declined from the prior session. Several “hammer” formations were seen on the charts offering some encouragement while the data continues to suggest further upside potential exists. As such, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.
- On the charts, all of the indexes closed higher Friday with positive internals as volumes slipped below those of the prior session. While no resistance levels were violated, there we a number of encouraging technical signs that suggest further strength is possible. The primary signals for encouragement, in our opinion, came from the SPX (page 2), DJI (page 2), COMPQX (page 3) and NDX (page 3) as all formed “hammer’ formations. As discussed in the past, said formations occur at the end of a protracted downtrend where prices open, trade significantly lower, but manage to close all the way back up to or very near their intraday highs. The interpretation is that a wash out of sellers has taken place. The COMPQX also closed back above its long term uptrend line as did the NDX that closed at resistance. The VALUA (page 5) successfully tested support. All of the stochastic levels remain very oversold but have not yet generated bullish crossover signals.
- The data remains encouraging, in our opinion. All of the McClellan OB/OS Oscillators remain oversold with the 1 day levels extremely so (All Exchange:-105.75/-88.41 NYSE:-111.77/-87.76 NASDAQ:-103.39/-90.4). The % of SPX stocks above their 50 DMAs (contrary indicator) remains very low at 15.5% while insiders continue to actively pick up stock with a 109.8 Open Insider Buy/Sell Ratio. Both the Total Put/Call Ratio (contrary indicator) at 1.16 and OEX P/C at 0.88 are bullish as well. Finally, we continue to find valuation reasonably below implied fair value with the forward 12 month earnings estimates for the SPX via Bloomberg at $172.44 leaving the forward 12-month p/e for the SPX at 16.0 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.23%.
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- In conclusion, while resistance levels have yet to be violated and an improvement in market breadth has yet to occur, both of which are critical to having a longer term optimistic opinion, the current state of the charts and data suggest we maintain our near term “neutral/positive” outlook for the major equity indexes.
- SPX: 2,710/2,795
- DJI: 24,874/25,872
- NASDAQ: 7,267//7,600
- NDX: 6,947/7,160
- DJT: 10,355/10,719
- MID: 1,858/1,908
- Russell: 1,540/1,640
- VALUA: 6,027/6,216