Short Term Outlook Remains “Neutral/Positive”
Opinion: Our next report will be Monday, June 27. All of the indexes closed lower yesterday with negative internals on both exchanges as volumes also declined. No technical signals of import were generated as a result of the weakness. The vast majority of the data remains neutral with a slightly positive tilt, in our opinion. As such, our near term outlook remains “neutral/positive” while the conflict between positive breadth and valuation remaining in the upper range of its historical levels keeps our intermediate view “neutral”.
- On the charts, all of the indexes closed lower yesterday with negative internals as volumes declined from the prior session. All closed at or near their intraday lows. However, other than the DJI (page 2) closing below its 50 DMA, no technical signals of import were generated, in our view. All remain above their short term downtrend lines that were violated recently while the stochastic levels remain on bullish crossover signals. As such, the action yesterday did nothing to alter our current “neutral/positive” opinion on the charts. We would also note that lately, the MID (page 4) and VALUA (page 5) have been testing resistance. Given the strong futures indications this morning, there is a reasonable probability said resistance may be violated today.
- The data remains largely neutral. All of the McClellan OB/OS Oscillators remain neutral (All Exchange:-25.14/+43.74 NYSE:-16.25/+69.2 NASDAQ:-35.32/+18.89) with the one exception of the 21 day NYSE being overbought. The WST Ratio and its Composite are neutral (61.4/147.7) along with the Gambill Insider Buy/Sell Ratio at 20.3. The Total and Equity Put/Call Ratios (contrary indicators) are adding a slightly positive tone as they now show the crowd weighted in puts at 1.04 and 0.77 respectively. In contrast, the OEX Put/Call Ratio (smart money), that found the pros heavily weighted in puts over the past few sessions, has shifted to a neutral 1.04 as they have exited a sizable portion of their prior bearish bets. So the overall picture of the data dashboard now, in our view, has taken on an ever so slight positive tone.
- In conclusion, yesterday’s action did nothing to alter our near term “neutral/positive” outlook for the major equity indexes. Valuation near historic highs versus positive market breadth leaves our intermediate view at “neutral”.
- Forward 12 month earnings estimates for the SPX from IBES of $125.78 leave a 6.03% 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