Short Term Outlook Remains “Neutral/Negative”
Opinion: Most of the indexes closed lower yesterday with the exception of the COMPQX moving marginally higher. Internals were negative on the NYSE and mixed on the NASDAQ. Volumes declined on both exchanges from the prior session. No technical events of import were registered on the charts while the data remains largely neutral. As such, we are maintaining our near term “neutral/negative” outlook for the major equity indexes.
· On the charts, all of the indexes closed lower yesterday with the exception of a fractional gain on the COMPQX (page 3). Internals were generally negative. No support or resistance levels were violated leaving the DJT (page 3) short term trend negative and below its 50 DMA while the COMPQX is the only index remaining in a short term uptrend. The rest are neutral. The advance/decline lines for the All Exchange and NYSE are neutral while the NASDAQ A/D (page 9) has turned negative and below its 50 DMA. We continue to be of the opinion that this is suggestive of a general weakening of internal market breadth. This weakening of breadth within what we view as a deceptively neutral market has been postulated by some as the result of the lion’s share of money flowing into the markets into passive ETFs by the crowd that is focused more on inexpensive fees as opposed to value.
· The data is largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-0.38/-17.78 NYSE:-12.4/-10.05 NASDAQ:-4.68/-24.15). The Equity and OEX Put/Call Ratios are neutral as well at 0.64 and 1.08 respectively while the Gambill Insider Buy/Sell Ratio is stuck at a neutral 11.2.
· In conclusion, there has yet to appear enough evidence to alter our near term “neutral/negative” outlook for the major equity indexes given what we see as deteriorating breadth as stocks are expensive from a historical view at a 17.8 forward multiple on the SPX based on IBES forward 12 month earnings estimates as investment advisor complacency remains fairly high with a 17.5/53.4 Investors Intelligence Bear/Bull Ratio (contrary indicator).
· Forward 12 month earnings estimates for the SPX from IBES of $133.07 leave a 5.61 forward earnings yield on a 17.8 forward multiple, near a decade high.
SPX: 2,360/2,396
DJI: 20,761/20,957
COMPQX; 5,804/NA
DJT: 9,045/9,416
MID: 1,697/1,744
RTY: 1,358/1,383
VALUA: 5,354/5,468