Some Resistance Levels Violated
Opinion: All of the indexes closed notably higher Friday on strong volumes and broadly positive internals. All closed near their intraday highs. Some resistance levels were violated on the charts offering encouragement. However, others were only tested as we now find the 1 day McClellan OB/OS Oscillators overbought. As such, we are shifting our near term outlook to neutral. There are some signs emerging benefitting the more intermediate term outlook but not enough, at this point, to alter our current cautious opinion.
- The indexes closed nicely higher Friday with very strong volumes and internals. It was a powerful rally that actually resulted in the SPX (page 2) and DJI (page 2) closing above their short term resistance levels adjusted below. However, the MID (page 4) and VALUA (page 5) closed at resistance, unable to rise above. That is not a negative outcome, but may now prove problematic for the near term regarding broader market participation.
- It is some of the short term data, in combination with resistance levels, that is causing us to change our near term outlook to neutral from our prior neutral/positive opinion. All of the 1 day McClellan OB/OS Oscillators are now oversold (NYSE:+87.9 NASDAQ:: +51.95 VALUA:+70.34) although the NASDAQ is only mildly so. Nonetheless, a large portion of the short term fuel we suspected would propel the indexes off of their recent lows has now been spent. As well, the WST Ratio and its Composite are both bearish at 64.5 and 156.8 while the OEX Put/Call Ratio (smart money) stands at a neutral 1.0.
- One encouraging sign is the continued buying activity by insiders. The Gambill Insider Buy/Sell Ratio now stands at a very bullish 54.8 (page 9). That is the strongest reading since the September ’15 lows preceded by those seen in June of 2012. Yet, given the OB/OS and other readings, a pause may be at hand for the short term.
- In conclusion, while the charts are doing their best to recover from last month’s drubbing, a good portion of the short term data suggests a pause also being corroborated by most of the indexes having yet to violate resistance. And while we are seeing some improvement for the intermediate term, it is not yet sufficient to alter our cautious outlook in that regard at this point.
- Forward 12 month earnings estimates for the SPX from IBES of $124.43 result in a 6.41% forward earnings yield with a 15.6 forward multiple.
SPX: 1,875/1,949
DJI: 15,975/16,592
COMPQX; 4,418/4,644
DJT: 6,580/7,022
MID: 1,230/1,315
RUT: 982/1,052
VALUA: 3,888/4,070