Near-Term Outlook Remains “Neutral/Positive”
All of the major equity indexes closed lower Wednesday with negative internals on the NYSE and NASDAQ as overall trading volumes rose significantly above those of the prior session. Four of the large cap indexes closed below their short term uptrend lines but no important support levels were violated. The data, as has been the case for several days, continues to send a generally neutral message regarding market prospects. As such, and in spite of yesterday’s action, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.
On the charts, all of the major equity indexes closed lower yesterday with negative internals and heavy trading volumes.
- Some damage was done to the charts in the form of the SPX (page 2), DJI (page 2), COMPQX (page 3) and NDX (page 4) closing below their short term uptrend lines, turning those trends to neutral from positive.
- The rest of the indexes remain in their near term uptrends.
- Importantly, in our view, no support levels were violated on the charts even though selling pressure was notable.
- The SPX, COMPQX, NDX, DJT (page 4) and MID (page 4) flashed “bearish stochastic crossover signals”. However, those signals are not actionable, in our opinion, unless near term support levels are violated. Breaks of support would likely darken the forecast.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ were unchanged as a result of yesterday’s action leaving the All Exchange and NYSE positive and the NASDAQ neutral.
- High “volume at price” (VAP) levels are supportive on the DJT, MID and VALUA (page 5).
The data continues its neutral message.
- The 1-day McClellan OB/OS Oscillators are still neutral (All Exchange:-19.71 NYSE:-20.26 NASDAQ:-19.27).
- The detrended Rydex Ratio (contrary indicator) at +0.7 is neutral as is the AAII Bear/Bull Ratio (contrary indicator) at 29.0/33.0. We still view the lack of crowd enthusiasm as noted by these two contrarian indicators as a positive.
- However, this is still somewhat counterbalanced as the Investors Intelligence Bear/Bull Ratio (contrary indicator) remains bearish as advisors are largely bullish at 16.3/58.0.
- The % of SPX stocks above their 50 DMAs (66.1) is neutral as is the Open Insider Buy/sell Ratio (36.1).
- The 12-month forward consensus earnings estimate from Bloomberg for the SPX is $173.80, leaving the forward p/e at a 17.3 multiple while the “rule of twenty” finds fair value at 18.0.
- The 10-Year Treasury yield is 2.02%.
- The earnings yield stands at 5.8%.
In conclusion, yesterday’s selloff, while altering some near term trends, was not sufficient enough to alter our near term “neutral/positive” outlook for the major equity indexes.