Short Term Outlook Turns Neutral/Positive
Opinion: All of the indexes closed higher Friday with positive internals as volumes declined on the NYSE and NASDAQ. All closed at or near their intraday highs after testing support levels on Thursday. The charts are now suggesting some indexes may see violations of their short term downtrend lines while tests of near term resistance appear probable. The data remains a mixed bag but insiders have been buying at their most aggressive pace since the lows of last September. As such, we are shifting our short term outlook to neutral/positive. However the advance/decline lines remain in downtrends, thus keeping us cautious for the more intermediate term.
- On the charts, the markets has a good day Friday as all closed higher and at or near their highs of the day. Breadth was positive as well although volumes declined. The DJT (page 3) managed to close back above its short term downtrend line offering some hope for the other indexes. Both the COMPQX (page 3) and MID (page 4) are at their short term downtrend lines that, given the futures, will likely be violated today. With the exception of the DJT, the rest of the indexes find their stochastic levels at the lower end of their ranges also offering some encouragement. Tests of resistance now appear likely although we need to see them violated with volume to become more optimistic.
- The data is a mixed bag with all of the McClellan OB/OS Oscillators neutral. The OEX Put/Call Ratio (smart money) is neutral as well at 1.29. And while the WST Ratio and its Composite are bearish at 69.1 and 158.0, sentiment levels have turned green. The Gambill Insider Buy/Sell Ratio at 67.0 is very bullish as it shows insiders buying at their most active pace since the lows of last September that was coincident with the market’s bottom. In contrast, the Rydex Ratio (contrary indicator) shows the levered ETF traders becoming increasing cautious at 27.5. We find the Gambill data particularly encouraging.
- In conclusion, the charts are now suggesting potential violations of short term downtrend lines and tests of resistance while sentiment data is also becoming more encouraging. As such, our near term outlook has turned neutral/positive but violations of resistance and improved A/D lines are needed to shift our intermediate term cautious opinion.
- Forward 12 month earnings estimates for the SPX from IBES is $123.91 leaving a 6.64% forward earnings yield with a 15.0 forward multiple.
SPX: 1,813/1,878
DJI: 15,975/16,177
COMPQX; 4,211/4,434
DJT: 6,790/7,022
MID: 1,216/1,290
RUT: 923/985
VALUA: 3,713/3,959