Short Term Outlook Remains “Neutral”
Opinion: All of the indexes closed higher Friday with positive internals as volumes declined from the prior session on both exchanges. The minor chart warnings that were registered as a result of Thursday’s trade were neutralized via minor chart improvements Friday. However, said improvements were not enough to alter our near term “neutral” outlook for the major equity indexes when combined with the current data setup. For the intermediate term, the forward valuation of the SPX back to a historically high multiple of 17.4 keeps our view “neutral” in that regard as well.
· On the charts, all of the indexes closed higher on lighter volume but with positive internals Friday. The COMPQX (page 3) made a new closing high but actually failed to violate resistance from prior intraday high levels. The DJI (page 2) and MID (page 4) closed above resistance but new resistance levels are close by while the DJT (page 3) closed back above its 50 DMA. The net result, in our opinion, is the general sideways churn on the charts that has been ongoing since mid-December remains largely intact with the exception of the SPX (page 2), COMPQX and DJI in short term uptrends.
· The data remains a mix of signals yielding no strong near term directional probabilities. All of the McClellan OB/OS Oscillators remain neutral (All Exchange:+2.42/+20.9 NYSE:+21.17/+36.94 NASDAQ:+15.29/+1.06) along with the Total and Equity Put/Call Ratios at 0.76 and 0.68 respectively. While the new AAII Bear/Bull Ratio (contrary indicator) has turned bullish as bears now outnumber bulls 34.17/32.8, the Investors Intelligence Bear/Bull Ratio (contrary indicator) still shows advisors overly bullish at 17.6/61.8. As well, the pros measured by the OEX Put/Call Ratio at 0.53 expect strength as they are long calls while the Gambill Insider Buy/Sell Ratio at 7.5 still finds insiders as active sellers at current market prices. As such, the data scales are too evenly balanced to suggest any near term action probabilities.
· In conclusion, although there were some chart improvements from Friday, we remain of the opinion that not enough evidence has been presented to alter our near term “neutral” outlook for the major equity indexes.
· Forward 12 month earnings estimates for the SPX from IBES of $132.10 leave a 5.75 forward earnings yield on a 17.4 forward multiple, near a 12 year high.
SPX: 2,253/2,298
DJI: 19,832/20,097
COMPQX; 5,531/5,663
DJT: 9,000/9,325
MID: 1,659/1,710
RTY: 1,356/1,357
VALUA: 5,290/5,393