Data Turning More Mixed
Opinion: Most of the indexes closed higher yesterday with positive internals as volumes rose from the prior session. The only indexes closing lower were the COMPQX and SPX. More new closing highs were achieved on the charts as the short term uptrend lines remain intact. However, given the size of the rally, one might be moved to ask how much “gas” is left in the tank. The data is now sending some conflicting signals but remains essentially neutral in its message. So for the near term, we remain “neutral/positive” while extended valuation for the SPX keeps the intermediate view at neutral.
· On the charts, the only indexes closing lower yesterday were the COMPQX (page 3) and SPX (page 2) as internals were positive on both exchanges on rising volumes. More new closing highs were made on the DJI (page 2), MID (page 4), RTY (page 4) and VALUA (page 5). The DJT (page 3) closed above its near term resistance. All of the short term uptrend lines are intact with the advance/decline lines neutral versus their prior bearish trends. However, we now find all of the stochastic levels well into overbought territory with the exception of the COMPQX. They have yet to flash actionable bearish crossover signals and may take some time before doing so. Yet they do imply a possible shift in the risk/reward scenario for the markets.
· The data has become a bit more mixed from its prior strong bullish tone but has not shifted enough to alter our near term view. All of the McClellan OB/OS Oscillators are neutral with the exception of the 1 day NASDAQ that is overbought (All Exchange:+40.35/-13.04 NNYSE:+10.74/-17.62 NASDAQ:+77.04/-4.57). The Equity Put/Call Ratio and WST/Composite are also neutral at 0.57 and 45.8/130.3 respectively. However, the pros measured by the OEX Put/Call Ratio (smart money) now finds the pros heavy in puts at 1.94, expecting near term weakness.
· In conclusion, while we would not be surprised to see some moderation of momentum at this stage, the weight of the evidence continues to suggest to us that a near term “neutral/positive” outlook is the higher probability. Extended valuation of the SPX keeps our near intermediate term view “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $128.94 leave a 5.94 forward earnings yield on a 16.8 forward multiple.
SPX: 2,125/2,171
DJI: 18,262/NA
COMPQX; 5,147/5,282
DJT: 8,115/8,810
MID: 1,534/NA
RTY: 1,250/NA
VALUA: 4,895/NA