Data Remains Largely Neutral
Opinion: The bulk of the indexes closed higher Friday, the exception being the DJT. All closed at or near their intraday highs with mostly positive internals. Two of the index charts closed above resistance leaving all of the short term uptrends intact. The data remains largely neutral as well, leaving our near term outlook at “neutral/positive”. Breadth continues to improve and encouraging for the intermediate term that also remains “neutral/positive”. Our one concern for that time frame is the further extension of market valuation that is now approaching the pre-January correction levels.
- On the charts, the only index unable to post a gain on Friday was the DJT (page 3) that tested its uptrend line from the January lows along with its 200 DMA. The DJI (page 2) closed above resistance as did the MID (page 4). The SPX (page 1), DJI, COMPQX (page 3) and MID also had “bullish engulfing patterns” as they opened below Thursday’s close but reversed and closed above, boding well for the short term. We would also note the Advance/Decline Lines for the All Exchange, NYSE and NASDAQ all made higher highs as breadth continues to improve.
- The data remains largely neutral including the 1 day McClellan OB/OS Oscillators (All Exchange:+22.93 NYSE:+19.38 NASDAQ:+29.78). The Equity Put/Call Ratio remains neutral at 0.63 while the OEX Put/Call Ratio (smart money) has flipped to a mildly bullish 0.87 as the pros have reversed their prior weighting from puts to calls. The Gambill Insider Buy/Sell Ratio remains neutral at 13.7 although it has been showing a reduction in insider buying activity over the past several sessions. The only cautionary signal is coming from the WST Ratio and its Composite that are on a “bear alert” signal at 80.9 and 194.4.
- In conclusion, at this point, both the charts and data are suggesting higher prices over the near term. The continued improvement in breadth remains a positive for the intermediate term. However, that is being tempered, in our opinion, by valuation approaching levels seen just prior to the January correction that were near historic highs.
- Forward 12 month earnings estimates for the SPX from IBES of $122.83 leave a 5.93% forward earnings yield on a 16.9 forward multiple.
SPX: 2,025/2,076
DJI: 17,438/17,859
COMPQX; 4,756/4,924
DJT: 7,696/8,150
MID: 1,425/1,471
RUT: 1,065/1,120
VALUA: 4,385/4,552