Charts See Significant Improvement

McClellan OB/OS Oscillators Neutral

Opinion

All of the indexes closed higher yesterday with positive internals as volumes rose significantly on both exchanges. All closed at or near their intraday highs with several important chart improvements being registered. Meanwhile, the data has not deteriorated to cautionary levels that would be suggestive of a near term peak. As such, we are shifting our near term outlook to “neutral/positive” from our prior “neutral” view while the intermediate term remains “neutral” due to high forward valuation for the SPX.

• On the charts, all closed higher with strong breadth and heavy volume. Multiple important chart improvements were achieved as follows.

The SPX (page 2) closed above its 50 DMA, near term resistance and intermediate term downtrend line.

The DJI (page 2) closed above resistance.

The COMPQX (page 3) closed above resistance and its 50 DMA.

The DJT (page 3) closed above resistance.

The MID (page 4) closed above resistance, its 50 DMA and intermediate term downtrend line.

The RTY (page 4) closed above its 50 DMA, resistance and short term downtrend line.

The VALUA (page 5) closed above its 50 DMA and intermediate term downtrend line.

As such, the charts have taken on a much more encouraging tone.

• The data, surprisingly to us, is not yet sending an important dominance of near term caution, in spite of the significant gains over the past three days. In fact, all of the McClellan OB/OS Oscillators are only neutral (All Exchange:+12.99/-36.48 NYSE:+1.14/-27.61 NASDAQ:+26.09/-44.26). The Equity Put/Call Ratio is neutral at 0.61 while the Total Put/Call Ratio (contrary indicator) still shows the crowd nervous at 1.07. The Gambill Insider Buy/Sell Ratio remains mildly bullish at 24.9. Two cautionary signals are coming from the OEX Put/Call Ratio (smart money) showing the pros remain heavy in puts at 1.88 while the WST Ratio/Composite is on a “bear alert” signal. We believe yellow flags will be raised when the OB/OS levels see a higher spike into overbought territory. That is not yet the case.

• Given the shift in the charts and relatively benign data, we are changing our near term outlook to “neutral/positive” from “neutral”.

• Forward 12-month earnings estimates for the SPX from IBES of $128.94 leave a 5.94 forward earnings yield on a 16.8 forward multiple.
• SPX: 2,125/2,171
• DJI: 18,262/18,627
• NASDAQ: 5,147/5,282
• DJT: 8,115/8,532
• MID: 1,497/1,552
• Russell: 1,185/1,235
• VALUA: 4,755/4,957