Data Slightly Negative
Opinion:
Yesterday’s action in the equity markets on lighter volume left the current short term uptrends for the major indexes intact. The data, however, continues to have a slightly negative tone suggesting some neutral to negative action over the near term. As such, we believe the trends should be respected but any new buying should be done on an extremely selective basis.
· On the charts, there is little if any notable change. The SPX (page 2) and MID (page 4) both made new closing highs yesterday while the COMPQX (page 3) closed slightly lower on negative breadth. As stated above, all of the short term uptrend lines for the indexes remain intact and should be respected until or unless violated. The question remains as to the probability of such violations. For that, we look to the data.
· The data is largely neutral but some warning signs continue to persist. The WST Ratio and its Composite are bearish at 68.1 and 158.0. While at negative levels, they are not extreme. The Equity Put/Call Ratio (contrary indicator) finds the “crowd” still in a buoyant mood as they remain dominated by call buyers at 0.47. The prior strong warning coming from the pros via the OEX Put/Call Ratio (smart money) has shifted to a mildly bullish .82 but the 15 DMA remains very negative at 2.57. Finally, both of the McClellan 1 day OB/OS Oscillators are neutral (NYSE:+23.92 NASDAQ:+42.75) while the 21-day levels are overbought (NYSE:+96.04 NASDAQ:+68.22). Trying to make sense of the data leads us to the opinion that some current modest near term risk exists for the markets while the intermediate term may be a shade darker.
· In conclusion, our recent market concerns based on the data have not come to fruition. Now, with the uptrends intact and some mildly negative data, we are left with the opinion that the near term outlook for the indexes is neutral with some modest near term risk.
· For the longer term, we remain bullish on equities as they remain undervalued with a 6.38 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.06 versus the 10 Year Treasury yield of 2.62%.
SPX: 1,926/?
DJI: 16,717/?
NASDAQ: 4,285/?
DJT: 7,9285/?
MID: 1,395/?
RUT: 1,133/1,189