Asia stocks edge higher as tech recovers; economic uncertainty weighs
Short Term Outlook Neutral/Positive
Opinion: Most of the indexes closed higher Friday with positive internals as volumes declined from the prior session. A few resistance levels were broken on the charts but we are now of the opinion that the lion’s share of the oversold rally has been fulfilled suggesting some near term pause or neutral/positive action for the indexes over the near term. Sentiment data has improved notably giving a more positive tone to the intermediate term outlook although remaining neutral at this point in time.
- On the charts, the only index closing lower on Friday was the DJI (page 2) as the rest gained with positive internals. Volumes have slowed from the prior several sessions. Both the MID (page 4) and RUT (page 4) broke above their near term resistance levels while the SPX (page 2) closed on resistance with the COMPQX testing resistance on an intraday basis but failing to violate on the close. Short term resistance levels are fairly close at hand. As such, given the scope of the rally, we would now expect some pause in the near term action with a more “neutral/positive” outlook from our prior mildly bullish view on Friday.
- On the data, most of the McClellan OB/OS Oscillators are neutral (NYSE:+31.33/-37.16 NASDAQ:+32.98/-55.25) with only the NASDAQ 21 day still registering an oversold condition. We believe the OB/OS suggest the near term upside has become more limited. However, the sentiment data is screaming green. The Put/Call Ratios continue to show a heightening level of fear on the part of the crowd with a 1.28 Total and .72 Equity Put/Call Ratio (contrary indicators). The ISEE Put/Call Ratio (international/contrarian) is -23.2 also showing high fear while the Rydex Ratio (contrary indicator) has shrunk back to a mildly bearish 37.5 as the leveraged ETF traders continue to shed their leveraged long positions.
- In contrast the OEX Put/Call Ratio (smart money) at .76 shows the pros betting on some strength while the Gambill Insider Buy/Sell Ratio has spiked significantly to 115.9 as insiders are buying their stock hand over fist. So sentiment has done a complete reversal from just a few weeks ago.
- In conclusion, given the level of the OB/OS combined with chart resistance, we suspect we may see some pause from the recent rally while sentiment is building a very nice “wall of worry” for the markets to climb over the more intermediate term.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.35% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $126.35 versus the 10 Year Treasury yield of 2.19%.