Short Term Outlook Turns “Neutral”
Opinion: Most of the indexes closed higher yesterday with the exception of the COMPQX. Volumes rose on both exchanges with positive internals on the NYSE and mixed internals on the NASDAQ. Several resistance levels were violated on the charts while two were tested. All of the current uptrends remain intact. However, the data is starting to darken and, in our opinion, to enough of a degree to warrant a shift from “neutral/positive” to “neutral” for our near term outlook. Valuation continues to stretch with the SPX forward 12 month p/e on forward 12 month earnings estimates lifting to a 17X multiple, leaving us “neutral” for the intermediate term as well.
- On the charts, the only index closing lower yesterday was the COMPQX (page 3). The rest closed higher with the SPX (page 2), DJT (Page 3) MID (page 4) and VALUA (page 5) closing above their respective resistance levels. The DJI (page 2) and RUT (page 4) tested resistance but were unable to violate on a closing basis. As such, all of the current uptrends remain intact with a positive technical tone. We would also note that silver as measured by the SLV ETF (page 9) discussed in yesterday’s note did achieve a significant technical breakout above resistance on heavy trading volume.
- It is the shift in the data that is causing the change in our near term outlook to “neutral”. Although not dire, the 1 and 21 day McClellan OB/OS Oscillators are now in overbought territory for both the All Exchange (+51.29/+50.1) and NYSE (+61.96/+68.73). The NASDAQ levels remain neutral at +40.54 and +30.07 respectively. The Total Put/Call Ratio (contrary indicator) now shows the crowd shifting their exposure to calls at 0.62 while the OEX Put/Call Ratio (smart money) now finds the pros weighted in puts at 1.79 and betting on some weakness. As well, the WST Ratio and its Composite remain on a “bear alert” signal of 81.9 and 184.8. As a result, we believe the data has moved to levels suggesting the odds of near term continued strength have been reduced enough to warrant a “neutral” near term outlook.
- For the intermediate term, we remain “neutral” as the forward 12 month p/e based on IBES forward 12 month earnings estimates has lifted to a 17.0 multiple and just shy of the level seen prior to the January correction.
- Forward 12 month earnings estimates for the SPX from IBES of $123.58 leave a 5.88% forward earnings yield on a 17.0 forward multiple.
SPX: 2,074/2,106
DJI: 17,541/8,114
COMPQX; 4,836/5,001
DJT: 7,921/8,239
MID: 1,451/1,491
RUT: 1,093/1,146
VALUA: 4,525/4,685