Near-Term Outlook Remains “Neutral”
The indexes closed mixed Monday with negative internals on the NYSE while NASDAQ internals were mixed. All closed well above their intraday lows with some forming what we believe to be “hammer bottom” formations. The data is unavailable this morning. However, yesterday’s comment noted said data was approaching levels seen near short term lows. Yesterday’s action seems to confirm that at this point. As such, we are maintaining our near term “neutral” outlook for the major equity indexes but are now expecting some near term strength.
- On the charts, the indexes closed mixed yesterday with negative internals on the NYSE while the NASDAQ had negative breadth but positive up/down volume. All of the indexes closed well above their intraday lows. The DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5) closed lower as the rest advanced. Importantly, the SPX (page 2), DJI (page 2), DJT and VALUA (page 5) formed what we believe to be “hammer bottom” formations. These formations are considered to be positive signals that appear, after a protracted downtrend, when an index or stock opens, trades significantly lower on an intraday basis, but then manages to rally all the way up to or near its opening price. It suggests a washout of selling pressure. The fact that the DJI has seen greater than a 2,100 peak to trough decline in just the past five sessions qualifies as a “protracted downtrend”. The other indexes mentioned had similar notable declines over the same timeframe. The stochastic levels are now oversold on the DJT and MID. Yet cumulative breadth remains negative on the NYSE and NASDAQ advance/decline lies.
- The data is unavailable this morning. Valuation, however, still seems to be quite appealing as it is well below fair value, assuming current estimates hold, with the forward 12 month earnings estimates for the SPX via Bloomberg of $170.78, leaving the forward 12 month p/e for the SPX at 15.5 versus the “rule of 20” implied fair value of a 17.1 multiple. The “earnings yield” stands at 6.47%. 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.
- In conclusion, yesterday’s chart action suggests some near term strength may be at hand. Yet until we see some violations of resistance and downtrend lines, we are keeping our near term “neutral” outlook in place.
- SPX: 2,626/2,700
- DJI: 24,262/25,036
- : 6,930/7,200
- NDX: 6,526/6,800
- DJT: 9,900/10,370
- MID: 1,770/1,826
- : 1,439/1,482
- VALUA: 5,767/5,900