Short Term Outlook Remains “Neutral”
Opinion: All of the indexes closed lower yesterday with negative internals as volumes rose from the prior session. All closed at or near their intraday lows. Some weakness in the charts came in the form of more intermediate term uptrend lines being violated along with some DMAs and bearish stochastic crossover signals. The data remains largely neutral with some counterbalancing signals. Our takeaway is we remain “neutral” for the short term outlook while remaining “neutral/positive” for the intermediate term with the caveat that forward valuation is getting stretched.
- On the charts, all of the indexes closed lower with negative internals as volumes rose. Several technical events occurred resulting in some weakening of the charts. The MID (page 4) closed below support as well as its intermediate term uptrend line while flashing a bearish stochastic crossover signal. The SPX (page 2), DJI (page 2), RUT (page 4) and VALUA (page 5) all closed below their intermediate term uptrend lines as well, following the signal of the DJT from the prior session as discussed in yesterday’s comments. All of those indexes flashed bearish stochastic crossover signals as well. Both the COMPQX (page 3) and DJT (page 3) closed below their 200 DMAs. While not encouraging, the damage was not significant enough to alter our “neutral” outlook as these events could be part of a sideways progression at this point.
- The data remains mixed. The NYSE 1 day McClellan OB/OS is now oversold at -60.68 while the NASDAQ and All Exchange remain neutral at -27.12 and -43.19 respectively. The WST Ratio and its Composite are neutral at 42.2 and 135.0 along with the Equity Put/Call Ratio at 0.69. The OEX Put/Call Ratio (smart money) remains bearish at 1.75 although the pros have lessened their put exposure from the prior extreme level. And while the Gambill Insider Buy/Sell Ratio remains neutral at 10.3, it has been declining and suggestive of insider selling becoming more active. That may coincide with IBES reducing its forward 12 month earnings estimates again, this time from $122.83 to $122.64.
- In conclusion, we have not seen enough evidence to alter our short term neutral outlook while the intermediate term remains neutral/positive due to strong breadth as valuation issues are beginning to temper that outlook.
- Forward 12 month earnings estimates for the SPX from IBES of $122.64 leave a 6.0% forward earnings yield on a 16.7 forward multiple.
SPX: 2,025/2,076
DJI: 17,438/17,859
COMPQX; 4,756/4,924
DJT: 7,696/8,150
MID: 1,405/1,451
RUT: 1,065/1,120
VALUA: 4,385/4,552