Near Term Outlook Remains “Neutral/Positive”
Opinion: The indexes closed mostly higher Tuesday with the exception of the DJT declining on the day. Internals were positive on the NYSE and NASDAQ as volumes rose from the prior session. More technical improvements were seen on some of the charts while the data is now waving a few yellow flags of caution. However, with uptrend lines intact and general breadth positive, we are inclined to maintain our near term “neutral/positive” outlook, that was changed from our prior “neutral/negative” view Tuesday morning, for the major equity indexes.
- On the charts, only the DJT (page 3) closed lower yesterday as the rest posted gains. Some further chart improvement was seen as follows. The SPX (page 2) closed above resistance as did the DJI (page 2) which also closed above its short term downtrend line. The COMPQX (page 3) made a new closing high as did the VALUA (page 5) that also closed above prior resistance. The MID (page 4) closed at its near term resistance level but failed to violate at the close. As such, all of the indexes are now in short term uptrends with positive cumulative breadth on the exchanges. However, we would note that several of them are now well into overbought territory on the stochastic readings. Yet, negative signals will not be generated until they display “bearish crossover signals”.
- The data, as a result of the recent rally, is now displaying some caution signals, particularly form the McClellan OB/OS Oscillators. Both the All Exchange and NYSE are now mildly overbought on their 1 day readings at +51.12 and +53.53 respectively while the NASDAQ 1 day is overbought at +70.38. The NYSE 21 day level remains overbought at +75.71 while the All Exchange and NASDAQ remain neutral at +48.7 and +32.87. We would also note that the % of SPX stocks trading above their 50 DMAs is less than half at 49.1%. The Total and Equity Put/Call Ratios are neutral at 0.83 and 0.61 while the OEX Put/Call Ratio finds the pros giving a mildly bullish signal at 0.83.
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- In conclusion, the charts that saw technically important reversals as of Monday’s close remain positive. Yet some signs of caution are beginning to appear in the data as well as the forward valuation of the SPX lifting back to near its historically high levels at a 17.8 forward multiple. So the data and valuation suggest we maintain our current “neutral/positive” outlook for the major equity indexes as opposed to being outright positive.
- Forward 12 month earnings estimates for the SPX from IBES of $134.44 leave a 5.63 forward earnings yield on a 17.8 forward multiple, near a decade high.
SPX: 2,357/2,395
DJI: 20,659/20,100
COMPQX; 5,913/NA
DJT: 9,132/9,306
MID: 1,720/1,748
RTY: 1,379/1,411