Near-Term Outlook Remains “Neutral”Opinion
The majority of the indexes closed higher yesterday with the one exception of the DJT’s decline. Internals were positive on the NYSE and NASDAQ as volumes dropped from those seen in the prior session. The charts saw some new closing highs achieved with the short term trends remaining a mix of positive and neutral trajectories. The data is a mixed bag of neutral and negative signals. So, in spite of the chart improvements, we are maintaining our near term “neutral” outlook for the major equity indexes in place for some of the reasons discussed below.
- On the charts, the only index to close lower yesterday was the DJT (page 4). The rest posted gains with positive internals but overall volumes declined. The COMPQX (page 3) and NDX (page 3) closed above resistance and made new closing highs with the RTY (page 5) also making a new closing high. The SPX (page 2) and VALUA (page 5) closed above resistance, turning their trends from neutral to positive. Only the DJI (page 2) and DJT (page 4) remain in neutral trends. We would note the stochastic levels for the COMPQX and NDX are now overbought. The cumulative advance/decline lines for the All, Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs.
- The data is mixed. The 1 day McClellan OB/OS Oscillators are neutral but the 21 day levels have moved deeper into overbought territory (All Exchange:+34.47/+72.26 NYSE:+43.64/+81.62 NASDAQ:+29.49/+68.78). The Total P/C (0.81) and OpenInsider Buy/Sell Ratio (40.4) are neutral while the Equity P/C (0.55) and OEX P/C (1.44) are bearish. Valuation finds the forward 12 month P/E for the SPX based on forward 12 month consensus earnings estimates from Bloomberg of $163.36 at a 16.8 multiple versus the “rule of 20” implied fair value of 17.1.
- So with all of the chart improvements, why are we not changing our “neutral” near term to a more positive tone? Overall volumes have been declining as the markets have advanced suggesting some dissipation in demand. The VIX volatility index at 12.74 is just shy of its recent lowest levels for the past month at 12.37, suggesting we are close to some volatility reentering the markets. The 21 day oscillators are overbought while the two indexes leading the charge have overbought stochastic readings. The “rule of 20” suggests we are approaching fair valuation. In aggregate, they suggest better buying opportunities may lie ahead over the near term. Thus we are keeping our “neutral” outlook in place.
- SPX: 2,705/2,761
- DJI: 24,357/25,017
- NASDAQ: 7,418/NA
- NDX: 6,943/NA
- DJT: 10,713/10,995
- MID: 1,917/1,979
- Russell: 1,608/NA
- VALUA: 6,205/6,359