Near Term Outlook Remains “Neutral/Positive”
All of the indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as volumes rose above those of the prior session. The charts saw several negative technical events registered while the data saw some improvements. We suspect the charts and data may be having equalizing impacts for the near term, thus causing us to maintain our near term “neutral/positive” outlook for the major equity indexes.
On the charts, all of the indexes closed lower yesterday with negative internals on higher trading volume. Chart deterioration occurred in the following fashion.
- The DJI (page 2), MID (page 4) and VALUA (page 5) closed below near term support as well as their respective near term uptrend lines.
- Both the DJT (page 4) and RTY (page 5) closed below support while the SPX (page 2) and COMPQX (page 3) closed below their short term uptrend lines.
- Thus, we now find all of the major equity index charts in neutral patterns with the exception of the DJT that is now negative.
- As well, the cumulative advance decline lines for the All Exchange, NYSE (page 7) and NASDAQ turned neutral from positive. While not dire, we would need to see some violations of resistance with increased volume to become more encouraged.
The data, as a result of the losses, actually saw some improvement.
- All of the McClellan 1 day OB/OS Oscillators are now oversold while the 21 day levels have turned neutral (All Exchange:-70.42/+31.08 NYSE:-69.56/+45.44 NASDAQ:-73.77/+18.59).
- The Open Insider Buy/Sell Ratio (page 9) shifted from bearish to neutral, rising to 29.6%, as insiders took advantage of the weakness to add to their positions. The detrended Rydex Ratio (contrarian indicator) still finds the leveraged ETF traders neutral at 0.42.
- Valuation finds the spread between the forward p/e for the SPX based on Bloomberg forward 12 month consensus earnings estimates of $167.38 versus the “rule of 20” fair valuation at 16.6 versus 17.3. A narrowing of the spread has occurred over the past several weeks as estimates have declined with issuers generally cutting back their projections during the recent earnings season as the SPX rose in price. While still comparatively undervalued, it is much less so than a few weeks ago.
In conclusion, while the breaks in the charts yesterday are a cause of concern that should not be taken lightly, the improvement in the data suggests we should maintain our near term outlook for the major equity indexes at “neutral/positive” for now.