Near Term Outlook Remains “Negative”
Opinion: All of the indexes closed higher Monday with positive internals on the NYSE and NASDAQ as volumes declined from the prior session. Two resistance levels were violated to the upside on the charts while the near term trends are a combination of neutral and negative trajectories. The data is a mixture of neutral and negative readings. So in spite of some selective chart improvements form yesterday’s action, we remain of the opinion that a healthy amount of risk remains present and worthy of a near term “negative” outlook for the major equity indexes.
- On the charts, all of the indexes closed higher yesterday with positive internals as volumes declined from the prior session. The SPX (page 2) and COMPQX (page 3) both closed above their near term resistance levels but the next area of resistance is fairly close at hand. The MID (page 4) and VALUA (page 5) closed above their 50 DMAs leaving only the RTY (page 4) and DJT (page 3) below that level. Yet the near term trends are a mix of neutral and negative with the SPX and COMPQX neutral as the rest remain in downtrends. And while overall breadth has improved slightly, the fact that only 53.3% of the SPX components (page 9) are trading above their 50 DMAs illustrates how selective the advances have been. It is our opinion that the indexes are not telling the whole story.
- The data finds all of the McClellan OB/OS Oscillators neutral (All Exchange:+15.63/+25.07 NYSE:+16.96/+37.2 NASDAQ:+14.99/+16.41) along with a 54.3 Open Insider Buy/Sell Ratio. Cautionary signals are coming from the Equity Put/Call Ratio (contrary indicator) at 0.54 with the crowd long calls while the pros are long puts via the OEX Out/Call Ratio at 1.6. As well, the new Investors Intelligence Bear/Bull Ratio (contrary indicator) finds advisors devoid of concern at 17.1/58.1 suggesting a high degree of complacency at historically high valuation.
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- In conclusion, we remain of the opinion that a sizable amount of near term risk is present for the indexes given the charts and data and worthy of maintaining our “negative” outlook.
- Forward 12 month earnings estimates for the SPX from IBES of $134.56 leave a 5.63 forward earnings yield on a 17.9 forward multiple, near a decade high.
SPX: 2,354/2,400
DJI: 20,553/20,905
COMPQX; 5,908/6,140
DJT: 8,784/9,091
MID: 1,692/1,727
RTY: 1,350/1,376
VALUA: 5,368/5,466