COMPQX Closes Above Resistance
Opinion: The majority of the indexes closed lower yesterday with mixed internals on the NYSE and positive internals on the NASDAQ. Volumes dropped on the NYSE and rose on the NASDAQ. Two technical events occurred on the charts, one positive and one slightly cautionary. The data still has a very slightly negative tone but the charts remain largely intact. As such, we continue to view the near term prospects for the major equity indexes as “neutral” post the significant rally. Extended forward valuation for the SPX keeps the intermediate term view “neutral” as well.
· On the charts, the only index to close higher on the day yesterday was the COMPQX (page 3) that also managed to close above its near term resistance, finally following in the footsteps of the other indexes. However, the DJI (page 2) closed below its short term uptrend line. That is not necessarily a negative signal as it may imply only a slowing of momentum or sideways transition. It does, however, dampen near term expectations to some degree. The stochastic levels remain quite overbought across the board but have yet to send bearish crossover signals that would raise some concern.
· The data is largely neutral but does contain a couple of cautionary signals. The All Exchange and NASDAQ 1 day McClellan OB/OS Oscillators remain overbought at +58.0 and +76.74. (The rest of the OB/OS levels are neutral.) The OEX Put/Call Ratio (smart money) still finds the pros long puts and expecting weakness at 1.43, but less so than yesterday’s levels. Also, the new Investors Intelligence Bear/Bull Ratio (contrary indicator) is cautionary as advisors are now heavy in the bullish camp, now that the DJI is up 1,000 points, at 23.5/51.0. So while most of the data is noncommittal, there are a few clouds on the horizon, yet not enough to cause great concern at this time, in our opinion.
· In conclusion, the shift in the data keeps our near term expectations for the major equity indexes at “neutral” now that the markets have spiked post the election results. Some form of consolidation/retracement would not be out of the ordinary.
· Forward 12 month earnings estimates for the SPX from IBES of $129.76 leave a 5.96 forward earnings yield on a 16.8 forward multiple.
SPX: 2,150/2,187
DJI: 18,603/NA
COMPQX; 5,190/5,323
DJT: 8,115/8,810
MID: 1,540/NA
RTY: 1,250/NA
VALUA: 4,962/NA