Short-Term Outlook Remains “Neutral”

Charts Little Changed Post Fed Comments

Opinion

The indexes closed mixed and largely little changed yesterday, post comments from the Fed, after a volatile session. Internals were mixed on the exchanges as well. The charts remained little changed, for the most part, while the data continues to be skewed slightly to the positive. As such, our near term outlook remains “neutral” while a needed improvement in market breadth keeps us “neutral” for the intermediate term as well.

• On the charts, the indexes closed mixed with the SPX (page 2), COMPQX (page 3), DJT (page 3) and RUT (page 4) closing higher while the DJI (page 2), MID (page 4) and VALUA (page 5) closed lower. For the most part, the price changes were fractional. However, the VALUA closed below near term support, adjusted below, while the DJT and RUT registered “bullish stochastic crossover” signals. So the action appeared to be of little technical consequence. The NYSE saw negative internals on lighter volume while the NASDAQ saw positive internals on slightly higher volume.

• What may be of greater import was the 10 Year Treasury yield seeing a significant spike above its 50 DMA to 1.88% while the gold and silver ETFs (GLD/SLV) saw breaks below their respective near term support levels.

• The data remains tilted to the positive as the All Exchange and NYSE McClellan OB/OS Oscillators remain oversold at -60.53 and -73.9 with the NASDAQ 1 day slipping into neutral at -46.37. The Total and Equity Put/Call Ratios (contrary indicators) show the crowd remains nervous and long puts at 1.02 and 0.75 respectively. The OEX Put/Call Ratio (smart money) finds the pros very slightly long puts at 1.41, sending a mildly cautious signal. Meanwhile, the Gambill Insider Buy/Sell Ratio remains bullish at 28.6 as insiders continue to take advantage of market weakness to add to their holdings.

• In conclusion, there was not enough of a shift in the weight of the evidence yesterday, in spite of the intraday volatility, to alter our near term “neutral” outlook for the major indexes.

• For the intermediate term, we remain “neutral”, although valuation has moderated to some degree, due to a needed improvement in breadth.
• Forward 12 month earnings estimates for the SPX from IBES of $124.35 leave a 6.07% forward earnings yield on a 16.5 forward multiple.
• SPX: 2,039/2,083
• DJI: 17,480/17,947
• NASDAQ: 4,716/4,832
• DJT: 7,433/7,662
• MID: 1,423/1,469
• Russell: 1,094/1,129
• VALUA: 4,447/4,559