Some Charts See Technical Improvement
Opinion: All of the indexes closed higher yesterday with positive internals as volumes rose nicely from the prior session. All closed at or near their intraday highs. Some of the charts saw several technical improvements while the data remains largely in the neutral camp. Thus, given the positive chart action while the data has yet to flash sufficient warnings, we are altering our near term outlook for the major indexes from “neutral” to “positive”. Historically high forward valuation of the SPX keeps our intermediate term view at “neutral”.
· Most of the charts saw some healthy technical improvement yesterday. The SPX (page 2) closed above resistance along with the COMPQX (page 3), RUT (page 4) and VALUA (page 5). The COMPQX made a new closing high while the DJT (page 3) closed above its 50 DMA and long term downtrend line. The MID (page 4) closed back above its long term uptrend line as the VALUA climbed back above its 50 DMA. Only the DJI (page 2) was unable to register any technical achievements. We would also note that all of the advance/decline lines for the indexes have turned positive from their prior neutral conditions.
· The data appears not to be of any great hindrance at this point as the vast majority remains in neutral territory. All of the McClellan OB/OS Oscillators are neutral (All Exchange:+18.55/+23.14 NYSE:+18.66/+25.78 NASDAQ:+19.7/+23.97). The Gambill Insider Buy/Sell Ratio at 17.1 and Equity Put/Call Ratio (0.63) are neutral as well. Only the OEX Put/Call Ratio (smart money) is bearish at 2.3 as the pros remain weighted in puts and looking for weakness. Their projection accuracy has been lacking of late. As such, the data scales are fairly evenly balanced and not presenting any significant road blocks at this point, in our opinion.
· In conclusion, the recovery of the charts and market breadth when combined with generally benign data readings warrants a shift from our prior “neutral” short term outlook to “positive”. However, a 16.9 forward 12 month multiple for the SPX keeps our intermediate term view at “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $127.97 leave a 5.92% forward earnings yield on a 16.9 forward multiple.
SPX: 2,119/2,171
DJI: 18,010/18,374
COMPQX; 5,221/NA
DJT: 7,744/7,957
MID: 1,502/1,553
RUT: 1,213/1,252
VALUA: 4,848/4,934