Near Term Outlook Turns “Neutral”
Opinion: The indexes closed mixed Friday as volumes increased from the prior session. NYSE internals were positive while the NASDAQ internals were negative. However, the indexes did not perform in line with the internals as the larger cap indexes declined while the others saw gains on the day. A number of short term downtrend lines were violated while the data remains a mixed bag of directional implications. Nonetheless, the trend line violations in concert with a few other points are sufficient to shift our near term outlook from “neutral/negative” to “neutral”. We remain “neutral” for the intermediate term as positive breadth is counterbalanced by elevated valuation.
- On the charts, the DJT (page 3), MID (page 4) and VALUA (page 5) closed higher on the day as the rest declined. Of note, the short term downtrend lines for the DJT, MID, RUT (page 4) and VALUA all closed above their short term downtrend lines as noted on their charts. We also saw the SPX (page 2) and DJI (page 2) flash “bullish stochastic crossover” signals even though both closed lower on the day. While no resistance levels were violated, the combination of trend violations and stochastic signals are, in our opinion, enough to alter our near term outlook to “neutral” from our prior “neutral/negative” view.
- The data remains inconclusive as there is no consensus of directional implications. The bulk of the McClellan OB/OS Oscillators are neutral with the exception of the NASDAQ 1 day at an oversold -56.08 and the 21 day NYSE an overbought +59.65. The Total Put/Call Ratio (contrary indicator) at 1.11 still shows the crowd weighted in puts at 1.11 while the pros measured by the OEX Put/Call Ratio (smart money) also very long puts at 2.03. As such, they neutralize their respective implications. The Gambill Insider Buy/Sell Ratio, although remaining neutral, has seen a pickup in insider buying as it has risen from 9.5 to 19.5. On the other hand, the WST Composite is a bearish 151.4. Thus with the scattering of data signals, they remain inconclusive in suggesting the near term probable direction for the markets.
- In conclusion, we are of the opinion that the chart violations of short term downtrends and other technical signals are sufficient to change our near term outlook to “neutral” from “neutral/negative”. The intermediate term view is an unchanged “neutral” as positive breadth is being opposed by relatively high valuation.
- Forward 12 month earnings estimates for the SPX from IBES of $125.82 leave a 6.08% forward earnings yield on a 16.5 forward multiple.
SPX: 2,066/2,104
DJI: 17,650/18,058
COMPQX; 4,780/4,969
DJT: 7,523/7,771
MID: 1,452/1,498
RUT: 1,133/1,201
VALUA: 4,539/4,694