Short Term Outlook Remains “Neutral”
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE and mixed internals on the NASDAQ. No technical signals of import were generated while the mild action of the last 2 sessions has moderated some of the data from its prior cautionary signals. So given the current state of the data and charts, we continue to have a near term “neutral” outlook for the major indexes while the improvement in market breadth keeps us “neutral/positive” for the intermediate term with the one outlier of valuation approaching historic high levels.
- On the charts, the COMPQX (page 3) and MID (page 4) closed higher yesterday while the rest saw minor losses. Internals were mildly negative on modest trading volume. No important technical events were generated beyond the COMPQX closing above its 150 DMA as the MID closed at resistance.
- The U.S, Dollar chart discussed a few days ago did see a bounce after its break of important support last week and is indicating a test of new resistance this morning. We suspect the test of resistance will fail followed by further dollar weakness over the next several sessions based on the magnitude of the support violation and what appears to be a long term topping pattern.
- The subdued activity of the indexes over the past two sessions has moderated some of the data including the 1 day McClellan OB/OS Oscillators that are now neutral across the board (All Exchange:+44.39 NYSE:+48.63 NASDAQ:+41.38). The 21 day levels remain overbought. The WST Ratio and its Composite remain neutral (54.5/136.4) while both the Total and Equity Put/Call Ratios (contrary indicators) have turned bullish as the crowd is now heavy in puts at 1.07 and .88 respectively. Some counterbalancing effect is coming from the OEX Put/Call Ratio (smart money) that now finds the pros very heavy in puts at 2.96 and expecting weakness with the Rydex Ratio (contrary indicator) finding the leveraged ETF traders fairly heavily leveraged long at 56.3. As such the data, as a whole, is somewhat evenly distributed adding to our near term neutral expectations.
- In conclusion, both the charts and data are leading us to expect some further sideways action for the indexes over the near term while stronger breadth juxtaposed to historically high valuation yields a “neutral/positive” intermediate term outlook.
- Forward 12 month earnings estimates for the SPX from IBES of $123.12 leave a 6.0% forward earnings yield on a 16.7 forward multiple.
SPX: 2,005/2,076
DJI: 17,009/17,712
COMPQX; 4,715/4,924
DJT: 7,536/8,150
MID: 1,389/1,428
RUT: 1,035/1,107
VALUA: 4,320/4,586