Short-Term Outlook Remains “Neutral”Opinion
All of the indexes closed lower yesterday with negative internals as volumes rose on both exchanges. It was a day of distribution as all closed at or near their intraday lows. There were a couple of negative events on the charts while the data continues to remain largely neural in its message. As such, our short term outlook for the indexes remains neutral while we are shifting our intermediate term outlook to neutral as well, in spite of geed market breadth, largely as a result of valuation and an increase of insider selling activity.
- On the charts, all of the indexes closed lower yesterday with negative internals on increasing volume. The DJT (page 3) closed below its short term support level and remains below its intermediate term uptrend line. Although its stochastic level is now well into oversold territory, the tendency for the DJT to be the “leading index” does elevate some near term risk for the rest of the indexes, in our view. The COMPQX saw no break of support. However, it did violate both its 200 DMA and intermediate term uptrend line, slightly weakening that chart as well. The technical picture for the rest of the indexes was unchanged from their current sideways trends.
- The data still remains largely neutral including the bulk of the McClellan OB/OS Oscillators, the exception being the 1 day NYSE OB/OS oversold at -66.78. The WST Composite and Equity Put/Call Ratio are neutral at 115.6 and 0.68 respectively while the OEX Put/Call Ratio (smart money) has again seen a flip in the options activity of the pros as they are now mildly weighted in calls at 0.95, suggesting their expectations of some near term strength.
- One data point that continues to get our attention is the Gambill Insider Buy/Sell Ratio. Although it remains neutral at 9.2, it has been steadily declining over the past several sessions as insiders have either backed off on buying or increased their selling activity, post the recent rally. The recent action of the insiders combined with valuations approaching a historically high levels at a current forward 12 month P/E for the SPX at 16.6 is, we believe, enough import to shift our intermediate term outlook from “neutral/positive” to “neutral”.
- In conclusion, our near term outlook remains neutral while the intermediate term has turned “neutral” as valuation issues are beginning to temper that outlook along with recent insider selling activity.