Some Breakouts From Sideways Patterns Achieved
Opinion: All of the indexes closed higher yesterday with positive internals as volumes rose on the NYSE and NASDAQ. All closed at or near their intraday highs. Three of the index charts made new closing highs with some sideways patterns finally being resolved to the upside. The data remains largely neutral with the exception of some of the psychology data. So, due to the positive resolution on some of the charts combined with the generally neutral data, we are altering our near term outlook for the major equity indexes from “neutral” to “neutral/positive”. Extended forward valuation for the SPX near historic highs keeps our intermediate term view “neutral”.
On the charts, all of the indexes closed higher with positive internals on increasing volume. The SPX (page 2) and MID (page 4) managed to close above their resistance levels and month long sideways patterns to new closing highs, finally offering resolution. The COMPQX (page 3) also made a new closing high while the RTY (page 4) closed above resistance to shift its short term downtrend to neutral. As well, the NYSE advance/decline line turned positive while the NASDAQ A/D turned neutral from negative. As such, there was enough positive technical action to shift the chart pictures to more positive projections.
The data remains largely neutral. All of the McClellan OB/OS Oscillators are neutral with the one exception of the 21 day NYSE being slightly overbought (All Exchange:-3.63/+21.76 NYSE:+23.95/+51.36 NASDAQ:-1.12/+6.62). Both the Total and Equity Put/Call Ratios are neutral at 0.76 and 0.65 respectively while the OEX Put/Call Ratio (smart money) remains a bullish 0.84 as the pros continue to expect further strength. The Gambill Insider Buy/Sell Ratio slipped a bit further into neutral territory to 9.1. So with the exception of some of the psychology data, such as the Investor Intelligence Bear/Bull Ratio (contrary indicator) at 17.3/60.6 showing an almost complete lack of concern on the part of advisors, the data remains mostly neutral.
In conclusion, given yesterday’s chart action resolving some of the indexes bullishly out of their month long “rectangle” patterns combined with a largely neutral data dashboard, there now appears to be enough evidence to alter our near term outlook for the major equity indexes from “neutral” to “neutral/positive”.
Forward 12 month earnings estimates for the SPX from IBES of $132.36 leave a 5.8 forward earnings yield on a 17.2 forward multiple, near a 12 year high.
SPX: 2,237/NA
DJI: 19,735/19,975
COMPQX; 5,497/NA
DJT: 9,000/9,317
MID: 1,659/NA
RTY: 1,356/1,357
VALUA: 5,262/5,388