Short-Term Outlook Remains NeutralOpinion
All of the indexes closed higher yesterday with positive internals as volumes rose on both exchanges from the prior session. All closed at or near their intraday highs as some of the charts saw moves above resistance. Although the gains were modest in most cases, breadth continued to improve as more sectors and market capitalization levels participated leaving all of the short term uptrends intact. While the bulk of the data is unavailable this morning, yesterday’s gains assure that there was no moderation in the very overbought 1 day McClellan OB/OS Oscillators while the stochastic levels also remain extended. They are the primary reasons for our “neutral” near term outlook as they do imply some level of risk present for the near term.
- On the charts, all of the indexes closed higher with positive internals. Improvements in the charts came in the form of both the RUT (page 4) and VALUA (page 5) closing above their respective short term resistance levels that have been adjusted below. The VALUA also closed above its 150 DMA as it now approaches its long term downtrend line from June of last year. A breach of said downtrend would be positive for the markets in general, in our opinion.
- We would also note the improvement in the RUT and VALUA as a confirmation of widening breadth for the markets, the opposite of which was a major concern for us during Q4 2015. The DJT (page 3) and MID (page 4) both closed at resistance. They also would improve the technical outlook as well, should their levels be surpassed on a closing basis. No bearish crossover signals have been generated on the stochastic levels that remain very overbought.
- Unfortunately, most of the data is unavailable with the exception of the WST Ratio and its Composite which are both bearish at 72.4 and 161.3. There is a high probability, due to yesterday’s gains, that there was no moderation of the very overbought 1 day McClellan OB/OS Oscillators. The combination of the OB/OS, WST Ratio/Composite and stochastic levels are our main reasons for staying neutral in spite of the positive short term uptrends. Although all can stay elevated for extended periods, they do imply an elevation in short term risk.
- The intermediate term outlook remains neutral/positive as market breadth has expanded notably with small and midcap stocks showing greater participation among more sectors.