Short Term Outlook Remains “Neutral/Positive”
Opinion: Most of the indexes closed lower Friday, with one exception. Internals were generally negative while trading volumes were comparatively light. No technical events of import were generated on the charts while the data remains a mix of neutral, bullish and bearish signals. As such, we are maintaining our near term “neutral/positive” outlook for the major equity indexes while forward valuation of the SPX at a decade high keeps our intermediate term view “neutral”.
· On the charts, all but the COMPQX (page 3) closed lower Friday. No support levels or short term trends were violated on the session. Breadth was negative as up/down volumes were negative on the NYSE and positive on the NASDAQ. Most closed near the midpoints of their intraday trading ranges. Technically speaking, it was an uneventful day.
· The data remains a mix of signals leaving no strong near term directional probabilities. All of the McClellan OB/OS Oscillators are neutral (All Exchange:+10.84/+30.38 NYSE:+4.79/+46.9 NASDAQ:-2.85/+1.65) as well as the OEX Put/Call Ratio (smart money) at 1.34. The crowd has become a bit more nervous and is buying puts according to the Total and Equity Put/Call Ratios at 1.0 and 0.73 respectively. However, the Gambill Insider Buy/Sell Ratio remains a notable concern as insiders continue to be active sellers of their stock at current levels with a 7.9 reading. So the data is too evenly spread to offer any strong near term implications.
· In conclusion, while the charts and data suggest we maintain our near term “neutral/positive” opinion intact for the indexes, insider activity combined with forward valuation for the SPX at a decade high of 17.4 suggests we should progress with a reasonable degree of caution. This is not a time, in our view, to get too optimistic regarding potential reward.
· Forward 12 month earnings estimates for the SPX from IBES of $132.36 leave a 5.76 forward earnings yield on a 17.4 forward multiple, near a 12 year high.
SPX: 2,237/NA
DJI: 19,832/NA
COMPQX: 5,497/NA
DJT: 9,000/NA
MID: 1,659/NA
RTY: 1,356/1,357
VALUA: 5,262/NA