Near Term Outlook Remains “Neutral/Negative”
Opinion: Most of the indexes closed lower Friday with negative internals on the NYSE and NASDAQ as volumes declined from the prior session on both exchanges. No technical events of import were registered on the charts, in our opinion. The data continues to be mixed but leaving a generally neutral projection as to near term probabilities. So while this morning’s futures indicate a strong open due to the election results coming out of France, our near term outlook remains “neutral/negative” as it is based on closing prices of the indexes and data. Should today’s early strength hold through the close, we may need to alter our view.
- On the charts, the only index managing to close higher Friday was the DJT (page 3). The rest close lower with negative internals but on lighter volume from the prior session. There were no violations of support/resistance or short term trend lines, leaving the bulk of the indexes in sideways patterns with the exceptions of the SPX (page 2) and DJI (page 2) that closed within their current downtrend barriers.
- The data is a mixed bag yielding no strong near term projections. All but the NYSE 21 day McClellan OB/OS Oscillators, which is overbought, are neutral (All Exchange:+20.26/+43.58 NYSE:+10.7/+63.15 NASDAQ:+17.54/+20.63). The Equity Put/Call Ratio is neutral as well at 0.67 while the Total and Equity Put/Call Ratios are counterbalancing at 1.04 (very bullish) and 1.43 (bearish) respectively. The rest of the data listed below is neutral.
- In conclusion, although the futures indicate a strong open that may alter the current trends, it is the closing prices of the indexes that are the ultimate determiner. As such, the current mix of neutral and negative trends on the charts when combined with the data leave our near term “neutral/negative” outlook in place. We would also reiterate our concerns regarding historically high forward valuation of the SPX, the high degree of investment advisor complacency and extensive use of margin debt as possible danger points, going forward.
- Forward 12 month earnings estimates for the SPX from IBES of $134.29 leave a 5.72 forward earnings yield on a 17.5 forward multiple, near a decade high.
SPX: 2,322/2,365
DJI: 20,378/20,641
COMPQX; 5,795/5,923
DJT: 8,812/9,200
MID: 1,677/1,725
RTY: 1,348/1,377
VALUA: 5,342/5,457