Stochastic Levels Remain Oversold
Opinion: All of the indexes posted gains on Friday with positive internals as volumes declined slightly from the prior session. All closed at or near their intraday highs. No technical events of import occurred while the data remains somewhat of a mixed bag. As such, we continue to have a “neutral;” near term outlook for the indexes while the intermediate term, due to valuation, remains “neutral” as well.
- On the charts, all of the indexes closed higher on Friday with positive internals and at or near their intraday highs. No resistance levels or short term downtrends were violated. We also still find all of the stochastic levels well into oversold territory and, although improving, have yet to trigger “bullish reversal” signals. Should either the downtrends or stochastics reverse, they would add some near term encouragement, in our view.
- The data remains a mixed bag with the All Exchange and NASDAQ 1 day McClellan OB/OS Oscillators still oversold at -56.63 and -71.79 respectively. The NYSE 1 day OB/OS is now a neutral -44.79. The put/call ratios are cancelling each other out as the Total and Equity Put/Call Ratios (contrary indicators) show the crowd remains very nervous and heavy in puts at 1.19 and 0.92 while the OEX Put/Call Ratio (smart money) finds the pros having completely reversed course and are now very heavy puts at 3.43 and expecting weakness. The Gambill Insider Buy/Sell Ratio has improved but remains neutral at 18.7 as insiders have taken some advantage of the recent weakness to do some buying. Unfortunately, the overall data picture is fairly balanced, yielding no strong directional implications.
- In conclusion, while Friday’s action was positive, it was not enough, in conjunction with the data, to alter our near term “neutral” outlook for the markets.
- For the intermediate term, we remain “neutral” as the IBES forward 12 month earnings estimates for the SPX of $122.95 leave market valuation in the upper end of its historical range. The recent decline in the SPX has done little to moderate said valuation.
- Forward 12 month earnings estimates for the SPX from IBES of $122.95 leave a 5.98% forward earnings yield on a 16.7 forward multiple.
SPX: 2,044/2,091
DJI: 17,553/17,972
COMPQX; 4,716/4,888
DJT: 7,607/7,955
MID: 1,435/1,466
RUT: 1,107/1,162
VALUA: 4,499/4,631