Short Term Outlook Remains Neutral/Positive
Opinion: All of the indexes closed higher yesterday but internals and volumes were mixed. The data continues to suggest some further relief from the recent downdrafts leaving our near term outlook as neutral/positive. However, the intermediate term continues to be a concern as market breadth remains extremely weak , no sectors have yet emerged as leaders, valuation remains near a decade high and the broader market index of the VALUA has given a troubling warning signal.
- On the charts, all of the indexes closed higher yesterday but internals were less than exciting as decliners outnumbered advancers on both exchanges and down volume exceeded up volume on the NYSE. Large-cap stocks dominated the advance as has been the case for the past several months, leaving breadth wanting. However, post such a decline as we have seen recently, it is not unusual for money moving back into the markets to pursue large, liquid names initially. The SPX (page 2), COMPQX (page 3) and DJT (page 4) all tested support successfully. We would note the DJT was the only index that actually closed it its intraday high, an encouraging sign. All of the stochastic levels remain extremely oversold, suggesting potential for further positive action although no bullish reversals have been registered at this point. All short term downtrends remain intact at this point as well.
- On the data, the McClellan OB/OS Oscillators remain oversold for the most part (NYSE:-92.24/-44.5 NASDAQ:-93.6/-73.89) adding to some near term upside potential. All of the put/call ratios remain bullish as well as the Total and Equity Put/Call Ratios (contrary indicators) at 1.02 and .86 still show the crowd loaded in puts while the OEX Put/Call Ratio (smart money) remains mildly bullish at 0.94.
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- In conclusion, the weight of the evidence still suggests some upside relief from the recent pain as the higher probability. However, unless there is a marked improvement in breadth, an increase in trading volume on broader advances, some signs of sector leadership and a violation of the negative signal coming from the VALUA chart, our intermediate term concerns persist.
SPX: 1,920/2,063
DJI: 16,247/17,143
COMPQX; 4,662/5,049
DJT: 6,912/7,515
MID: 1,300/1,397
RUT: 1,040/1,136
VALUA: 3,800/4,265