Data Slightly Negative
Opinion: All of the indexes closed higher yesterday with positive internals as volumes declined from the prior session. All closed at or near their intraday highs. All of the current short term trends remain intact with the COMPQX closing above short term resistance. While the data is now giving some slightly negative signals, it is not strong enough at this point to change our opinion that the near term outlook for the major indexes is neutral/positive until said trends are violated.
- On the charts, all of the indexes closed higher on the day and near their intraday highs with positive internals. The COMPQX (page 3) managed to close above its near term resistance and remains in its short term uptrend. The SPX (page 2), DJI (page 2) and RUT (page 4) all closed on their respective resistance levels but were not able to supersede them by the close. However, their short term uptrends remain intact as well, suggesting potential bullish violations. The MID’s (page 4) short term uptrend remains intact as well but below resistance while the DJT (page 3) is neutral. As such, the charts remain largely short term constructive with no current sell signals being generated.
- The data has turned slightly negative as the NASDAQ 1 day McClellan OB/OS is now overbought at +54.99. However, the rest of the OB/OS remain neutral. The WST Ratio and its Composite are bearish as well at 72.8 and 154.3 along with the OEX Put/Call Ratio (smart money) at a very bearish 4.4 as the pros are back to heavy put ownership. Regarding the OEX, we reiterate our opinion that its forecasting strength has diminished over the past several weeks as numerous similar signals were generated without market response. The Rydex Ratio (contrary indicator) is still showing leveraged ETF Traders very leveraged long at 65.2 that is also a cause for concern. However, as a whole, we believe the data is not quite dark enough to tilt the market scales at this point as the OB/OS levels are not registering in notable danger zones.
- In conclusion, the short term outlook remains neutral/positive as all near term trends remain intact with the potential for the of the indexes to follow the COMPQX in violating their near term resistance levels to the upside. Yet valuation for the SPX at 16.7X forward 12 month earnings estimates is historically rich causing intermediate term caution.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 5.97% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.58 versus the 10 Year Treasury yield of 2.16%.
SPX: 2,044/2,102
DJI: 17,468/17,903
COMPQX; 4,978/5,169
DJT: 7,895/8,330
MID: 1,444/1,486
RUT: 1,145/1,204