Short-Term Opinion Remains “Neutral”Opinion
Most of the indexes closed higher Friday with positive internals as volumes declined from the prior session on both exchanges. However, the data continues to send its cautionary message while the majority of the indexes remain extended above their 50 DMAs. As such, given the lack of sell signals on the price charts at this stage, we remain near term “neutral” in our outlook for the indexes as we view current risk/reward less than attractive. The appearance of sell signals would turn us negative. Forward valuation of the SPX keeps the intermediate view “neutral” as well.
- On the charts, the DJT (page 3) and MID (page 4) closed lower Friday with the rest posting advances and new closing highs. While all of the uptrends remain intact and lacking sell signals, we would note all of the stochastic levels are well into overbought territory while several of the charts are quite extended above their 50 DMAs. As discussed in our recent comments, the extensions above the 50 DMAs are troubling as such conditions are typically resolved with either are period of sideways trade for several sessions or some price weakness bringing price back in line with the 50 DMAs, setting up neutral to negative projections. However, we have yet to see sell signals of import that would officially tilt the scales negative.
- The data continues its cautionary tone with all of the McClellan OB/OS Oscillators remaining overbought (All Exchange:+83.75/+81.72 NYSE:+76.67/+79.49 NASDAQ:+77.39/+89.11). The Equity Put/Call Ratio (contrary indicator) finds the crowd too optimistic and long calls at 0.53 along with the recent AAII Bear/Bull Ratio (contrary indicator) showing an excess of bullish crowd sentiment at 26.49/43.12. In contrast, insiders have ramped up their selling activity to a new peak with a bearish 7.8 Gambill Insider Buy/Sell Ratio. The WST Ratio/Composite is bearish as well at 89.9/189.2. The one outlier is the OEX Put/Call Ratio finding the pros mildly bullish bat 0.83.
- In conclusion, in spite of the price charts remaining in uptrends with an absence of sell signals, the state of their extensions above their 50 DMAs in combination with the current data suggests to us that risk/reward is not appealing enough to chase the markets at current levels. The exact opposite conditions now exist versus those prior to the market’s election rally.