Short Term Outlook Remains “Neutral”
Opinion: All of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ. Volumes rose on the NYSE and were flat on the NASDAQ as all of the indexes closed near their intraday lows. Some short term uptrend lines were violated on the charts while the data, in our opinion, continues to be of some concern. However, without actual sell signals appearing on the charts, we remain near term “neutral” for our outlook for the major indexes while forward valuation of the SPX at peak levels keeps the intermediate term view also “neutral”.
· On the charts, all of the indexes closed lower yesterday with negative internals and near their intraday lows. No support levels were violated. However, both the COMPQX (page 3) and VALUA (page 5) closed below their short term uptrend lines, suggesting a potential change in trend. The VIX (page 9) did the opposite by closing above its short term downtrend line, thus implying the potential of an increase in volatility over the near term. We would also note the stochastic levels remain near their peaks although they have yet to yield actionable bearish crossover signals. So while the charts remain largely intact, some flies are starting to appear in the ointment.
· The data still finds all of the 1 day McClellan OB/OS Oscillators in overbought territory (All Exchange:+69.46 NYSE:+51.84 NASDAQ:+54.16) while psychology is staring to signal an excess of bullish sentiment on the part of the crowd. The new AAII Bear/Bull Ratio (contrary indicator) now sees bulls swamping bears at 22.1/49.9 as well as on the Investors Intelligence Bear/Bull Ratio (contrary indicator) at 21.6/55.9. There has been a complete reversal of the bearish sentiment at the recent market lows. The balance of the data is in neutral territory.
· In conclusion, we are of the opinion that although the charts remain largely positive, there is enough evidence to suggest the recent rally is running low on fuel. Thus, risk/reward is fairly evenly matched and not advantageous enough to chase price at current levels. We remain near and intermediate term “neutral” in our outlook for the indexes.
· Forward 12 month earnings estimates for the SPX from IBES of $129.72 leave a 5.86 forward earnings yield on a 17.1 forward multiple.
SPX: 2,182/NA
DJI: 18,862/NA
COMPQX; 5,242/NA
DJT: 8,736/9,140
MID: 1,583/NA
RTY: 1,300/NA
VALUA: 5,094/NA