Data Remains Mostly Neutral
All of the major indexes closed lower Thursday with negative internals as volumes declined from the prior rally session. No technical events of import were generated on the charts while the data remains largely neutral. As such, we are maintaining our near term outlook for the major equity indexes as “neutral/positive”.
- On the charts, all of the indexes closed lower yesterday as they posted minor losses following Wednesday’s sizable rally. Internals were negative on the NYSE and NASDAQ as volumes declined from the previous up session. There were no technical events of import generated on the charts, leaving all of the indexes in their short term uptrends with the one exception of the RTY (page 5) staying neutral. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive but below their 50 DMAs.
- The data is largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:+41.22/+8.39 NYSE:+37.34/+14.78 NASDAQ:+44.88/+4.59). The rest of the data is neutral except for the detrended Rydex Ratio (contrary indicator page 8) that still finds the leveraged ETF traders leveraged short at a bullish -1.15. In contrast, the Open Insider Buy/Sell Ratio (page 9), while still in neutral territory, continues to find insiders primarily buyers at 104.5. We would reiterate seasonality remains encouraging has the November to April period coming out of a mid-term election year has seen positive returns since 1946 with a median return of 15% since 1930. Only two out of 21 periods were negative. Valuation, assuming current estimates hold, is below fair value with the forward 12-month earnings estimates for the SPX via Bloomberg of $170.85, leaving the forward 12-month p/e for the SPX at 16.0 versus the “rule of 20” implied fair value of a 17.0 multiple. The “earnings yield” stands at 6.24%.
- In conclusion, Wednesday’s sizable rally on strong volume pushed all but one of the index charts into positive short term uptrends with an improvement in overall breadth. Those issues remain intact while, in our view, valuation and seasonality are encouraging. So while we may see more consolidation of the recent rally, we are keeping our near term “neutral/positive” outlook for the major equity indexes in place.
- SPX: 2,682/2,775
- DJI: 24,673/25,396
- Nasdaq: 7,033/7,324
- NDX: 6,705/6,931/
- DJT: 10,365/10,985
- MID: 1,831/1,878
- Russell: 1,500/1,532
- VALUA: 5,915/6,072