Intermediate Term Outlook Turns Neutral
Opinion: All of the indexes closed lower yesterday with negative internals as all but the DJT closed near their intraday lows. However, volumes declined on the pullback implying a lessening of selling pressure. Some further short term weakness appears likely given the current state of the data but we suspect the weakness may prove to be tests of new support levels listed below before further progress is made.. Market breadth has improved enough over the past few weeks to shift our intermediate term outlook to neutral from cautious.
- On the charts, all of the indexes closed lower yesterday with negative internals as volumes declined on both exchanges. We interpret the lessening of volumes as a general decline in selling pressure versus the wholesale selling seen in the prior decline at the beginning of the month. No support levels were violated that have been adjusted higher as a result of Monday’s action. All of the stochastic levels are overbought implying some potential for consolidation. However, the DJT (page 3) remains in its short term uptrend and above its 50 DMA offering some solace.
- The improved breadth in the advance/decline lines for the All Exchange and NYSE also offer some encouragement and have resulted in our changing our intermediate term outlook to neutral. Given what we are seeing regarding better breadth and declining selling volumes, we suspect the short term weakness may prove to be only a test of new and higher support levels.
- The data is tilting short term negative as all of the 1 day McClellan OB/.OS Oscillators are overbought (ALL Exchange:+64.5 NYSE:+71.2 NASDAQ:+60.13) while the OEX Put/Call Ratio (smart money)shows the pros very long puts at 1.9 and expecting weakness. However, the Gambill Insider Buy/Sell Ratio, although lessening, remains bullish at 41.8 finding insiders remaining active buyers of their stock at current levels.
- In conclusion, although we may see some weakness over the near term, our intermediate term outlook has improved to neutral given the improvement in market breadth that is also supported by the action in the DJT which we still view as the leading index for the rest of the markets.
- Forward 12 month earnings estimates for the SPX from IBES is $123.12 leaving a 6.41% forward earnings yield with a 15.6 forward multiple.
SPX: 1,903/1,948
DJI: 16,204/16,660
COMPQX; 4,431/4,569
DJT: 7,057/7,513
MID: 1,289/1,346
RUT: 995/1,021
VALUA: 4,062/4,203