Data Moderates
Opinion: All of the indexes closed higher yesterday with positive internals as volumes rose slightly on the NYSE and declined on the NASDAQ. All closed at or near their intraday highs. All of the charts saw some form of technical improvement with some closing above resistance levels. The data, on the other hand, has moderated to some degree due to the large move by the indexes. It still has a slightly positive tone, but less so than prior to yesterday’s gains. As such, we are keeping our near term outlook for the major indexes at “neutral” as well as for the more intermediate term.
· On the charts, several technical improvements were achieved yesterday with all of the indexes closing near their intraday highs.
· Both the SPX (page 2) and DJI (page 2) closed above their short term resistance levels while generating bullish stochastic crossover signals. The DJI also closed above its 50 DMA and intermediate term downtrend line with the SPX closing above its short term downtrend line.
· The DJT (page 3) closed above resistance while the COMPQX (page 3), MID (page 4), RTY (page 4) and VALUA (page 5) all closed above their short term downtrend lines.
· We would also note the VIX (page 9) broke below its short term uptrend line suggesting a potential lessening of volatility. So, several positive events took place. However, with the exception of the % of SPX stocks trading above their 50 DMAs, the rest of the exchanges still find their advance decline lines in downtrends. In our opinion, those trends need to improve in order to be more enthusiastic.
· The data saw some moderation in the McClellan OB/OS Oscillators as most slipped into neutral territory (All Exchange:-27.1/-56.52 NYSE:-27.27/-44.03 NASDAQ:-27.15/-68.23). Only the All Exchange and NASDAQ 21 day levels remain oversold. The Total Put/Call Ratio (contrary indicator) still finds the crowd nervous and long puts at 1.22 while the pros have jumped back over the fence and are now long calls, expecting some strength, with at 0.74 OEX Put/Call Ratio (smart money). The Gambill Insider Buy/Sell Ratio remains a mildly bullish 24.9. So although the data is still sending a generally positive signal, it is not near the intensity seen over the past few days.
· In conclusion, in spite of yesterday’s achievements, we are inclined to keep our near term outlook for the major equity indexes at neutral, largely due to needed further improvement in market breadth. SPX forward valuation remaining in the upper range of its historical levels keeps our intermediate term view “neutral” as well.
· Forward 12 month earnings estimates for the SPX from IBES of $128.94 leave a 6.09 forward earnings yield on a 16.4 forward multiple.
SPX: 2,084/2,145
DJI: 17,829/18,318
COMPQX; 4,973/5,196
DJT: 8,016/8,331
MID: 1,475/1,516
RTY: 1,190/1,235
VALUA: 4,687/4,830