Near Term Outlook Turns “Neutral/Positive”
Opinion: The indexes closed higher yesterday with positive internals as volumes declined from the prior session’s expiration levels. Closing levels on an intraday basis were mixed. The charts saw improvements as more short term downtrend lines were violated along with a few other positive events. The data remains mixed but largely neutral in nature. As such, given the chart improvements, we are changing our near term outlook to “neutral/positive” versus our prior “neutral” view. The intermediate term remains “neutral” due to the counterbalancing of positive breadth versus extended valuation.
- On the charts, all of the indexes closed higher yesterday with positive internals. A number of positive technical events were registered as follows.
- The SPX (page 2), DJI (page 2) and COMPQX (page 3) closed above their short term downtrend lines, following the lead of the other indexes from Friday’s session.
- The SPX and DJI also closed above their 50 DMAs.
- As well, the DJT (page 3), MID (page 4), RUT (page 4) and VALUA (page 5) all flashed “bullish stochastic crossover” signals, fulfilling our speculation of last week.
- Finally, the VALUA closed on resistance. This may be of particular note as a violation of resistance, should it occur, would take place within a broad-based, unweighted index that we feel yields a more representative view of the markets versus the narrower, weighted counterparts.
- The data remains largely neutral with a few outliers. The bulk of the McClellan OB/OS Oscillators are neutral with the exceptions of the All Exchange and NYSE 21 day levels that are overbought at +66.38 and +88.19 respectively. The Equity Put/Call Ratio (0.60), Gambill Insider Buy/Sell Ratio (19.5) WST Ratio and its Composite (38.9/119.6) are neutral as well. The outlier is the OEX Put/Call Ratio (smart money) showing the pros pressing their bearish bets very heavily to 3.66 as they expect near term weakness. However, in our opinion, the OEX data is not sufficient to tilt the scales given the dominance of other neutral readings.
- In conclusion, the technical improvements on the charts combined with generally neutral data have caused us to shift our near term outlook from “neutral” to “neutral/positive”.
- Forward 12 month earnings estimates for the SPX from IBES of $125.78 leave a 6.04% forward earnings yield on a 16.6 forward multiple.
SPX: 2,066/2,104
DJI: 17,650/18,058
COMPQX; 4,780/4,969
DJT: 7,523/7,771
MID: 1,452/1,498
RUT: 1,133/1,201
VALUA: 4,539/4,694