Opinion: All of then indexes closed higher Friday with positive internals on the NYSE and NASDAQ as both exchanges saw volumes decline from the prior session. Two of the large cap indexes made new closing highs while the rest remain in their current sideways patterns. The data is neutral with some positive signals coming from the options pits. However, our interpretation of the evidence continues to suggest a “neutral” near term outlook for the major equity indexes as most appropriate.
On the charts, all of the indexes closed higher Friday with positive internals but lower volumes versus the prior session. Both the SPX (page 2) and COMPQX (page 3) made new closing highs while the DJT (page 3) closed above its 50 DMA. However, the SPX achievement occurred with only 59.4% of its components trading above their 50 DMAs, suggesting a very selective participation in that regard over the past weeks. The SPX and COMPQX also are the only indexes remaining in their short term uptrends as the rest are still in their sideways, neutral conditions. We would also note the NASDAQ remains on a “bearish divergence” signal (page 9) as the COMPQX makes new highs while the A/D is making lower highs. It is a cause of some concern although not as great as if it was occurring on the NYSE.
The data is neutral with some positive signals from the options put/call ratios. All of the McClellan OB/OS Oscillators are neutral with the exception of the NYSE 21 day that is mildly overbought (All Exchange:+0.20/+19.92 NYSE:-33.54/+54.13 NASDAQ:+2.57/+30.56). The Total and Equity Put/Call Ratios (contrary indicators) find the crowd leaning to puts at 1.0 and 0.77 while the pros are long calls on the OEX Put/Call Ratio at 0.79. The current Openinsider Buy/Sell Ratio remains neutral at 30.7.
In conclusion, while the high profile indexes continue to grab headlines as well as investor dollars, what we view as extreme selectivity in participation continues to be of concern as it implies a rather weak foundation for the markets. Indexing is the common approach as more money is funneled to fewer and fewer issues. Given the state of the charts, we maintain our current “neutral” outlook for the major equity indexes.
Forward 12 month earnings estimates for the SPX from IBES of $134.58 leave a 5.63 forward earnings yield on a 17.8 forward multiple, near a decade high.
- SPX: 2,381/NA
- DJI: 20,659/20,100
- COMPQX; 6,053/NA
- DJT: 8,984/9,231
- MID: 1,720/1,749
- RTY: 1,389/1,410
- VALUA: 5,447/5,554
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