Data Remains Mostly Neutral
The bulk of the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. The charts continued to improve with three indexes closing above their near term resistance levels. On the data side, the dashboard continues to send a generally neutral message with one exception. As such, given the charts and data, we are maintaining our near term “neural/positive” outlook for the major equity indexes.
On the charts, the only index to close lower Friday was the DJT (page 4). The rest posted positive results with the SPX (page 2), DJI (page 2) and NDX (page 3) closing above their short term resistance levels. Also, the MID (page 4) managed to close above its shot term downtrend line turning its trend to neutral from negative.
- So we now find the short term trends positive on the SPX, DJI, COMPQX and NDX positive with the rest neutral.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive as well.
- There are a couple of chart issues, however, that bear watching. The stochastic levels for the SPX, COMPQX and NDX are now overbought while the VIX has dropped to 12.9. Over the past year, the VIX has reached its low point at around the 11.70 level that was then followed by an increase in volatility due to varying degrees of market weakness.
The data remains largely neutral.
- The 1 day McClellan OB/OS Oscillators (All Exchange:-13.0 NYSE:-13.39 NASDAQ:-14.06), Open Insider Buy/Sell Ratio (60.1) and detrended Rydex Ratio (+0.16) are all neutral.
- However, the OEX Put/Call Ratio remains very bearish at 2.87 as the pros remain heavy in puts as they anticipate some near term weakness. This data point, however, has not been a reliable timing tool by our experience.
- Valuation finds the spread between the forward p/e for the SPX based on Bloomberg forward 12 month consensus earnings estimates of $167.41 versus the “rule of 20” fair valuation at 16.9 versus 17.4, suggesting the market is currently slightly undervalued. The spread has narrowed over the past several weeks as estimates have declined with issuers generally cutting back their projections during the recent earnings season as the SPX has risen in price.
In conclusion, while the VIX and stochastic levels need to be closely monitored, we see no evidence yet to alter our near term “neutral/positive” outlook for the major equity indexes.