Short Term Outlook Remains “Neutral”
Opinion: The indexes closed mixed yesterday with negative internals as volumes declined from the prior session. Closing prices fell within various points of their intraday ranges. No sell signals were generated, so the charts remain positive. However, the data continues to have a mostly cautionary tone suggesting near term risk is elevating. So in spite of the positive futures this morning, we are maintaining our near term “neutral” outlook due to conflicting chart/data messages, not to mention the DJI has already run over 1,300 points in the past 11 sessions. The intermediate term view remains “neutral” as forward valuation for the SPX is back near historic highs.
- On the charts, the indexes closed mixed yesterday with negative internals. The good news is that volumes declined versus the prior session. The SPX (page 2), DJI (page 2) and DJT (page 3) closed higher with the rest of the indexes closing in the red. No technical signals of import, in either direction, were generated. As such, all of the short term uptrend lines remain intact. However, we continue to be of the opinion that their nearly vertical slope is not sustainable. All of the stochastic levels remain overbought but no bearish crossovers were triggered.
- The data continues to have a mostly cautionary tone as all of the McClellan OB/OS Oscillators remain overbought (All Exchange:+70.18/+83.02 NYSE:+68.09/+108.11 NASDAQ:+78.35/+61.77) with the NYSE 21 day notably so. Insiders continue occupy the space at the selling window as the Gambill Insider Buy/Sell Ratio remains a bearish 7.4 while the Rydex Ratio (contrary indicator) finds the leveraged ETF traders still highly leveraged long at 56.6. Both the OEX and Equity Put/Call Ratios are neutral at 1.28 and 0.56 respectively. As such, we believe the data is less than encouraging at this point in time.
- In conclusion, when the charts and data are sending opposing signals as is the current case, we would typically defer to the charts. However, given the magnitude of the recent rally and its nearly vertical slope, the data takes on added weight as the potential for said slope to continue is limited, in our opinion Thus we maintain our near term “neutral” outlook as we believe near term risk of digestion is increasing.
- Forward 12 month earnings estimates for the SPX from IBES of $125.50 leave a 5.88% forward earnings yield on a 17.0 forward multiple.
SPX: 2,080/NA
DJI: 17,722/NA
COMPQX; 4,854/4,970
DJT: 7,685/7,943
MID: 1,489/1,547
RUT: 1,158/1,224
VALUA: 4,692/4,895