Short Term Outlook Remains “Neutral”
Opinion: The indexes closed mixed yesterday with negative internals on the NYSE and NASDAQ while trading volumes rose from the prior session as early gains faded throughput the day. A couple of technical events occurred on the charts but left them unchanged from their current mix of sideways and modest upward short term trends. SPX internals appear to be weakening while the data remains mixed as the psychology levels continue to be of some concern. Thus we are keeping our short term “neutral” outlook for the major equity indexes intact while historically high forward valuation of the SPX keeps the intermediate term view “neutral” as well.
On the charts, the indexes closed mixed yesterday with negative internals on the NYSE and NASDAQ on rising volumes. The SPX (page 2) saw a fractional gain while the COMPQX (page 3) closed above resistance to a new closing high. The DJI (page 2) also rose fractionally. However, the rest of the indexes declined with the RTY (page 4) closing back below its 50 DMA. As such, the modest uptrends for the SPX, DJI and COMPQX remain intact while the balance of the indexes continue their 2 month long sideways patterns. We would note some concern as the % of SPX stocks trading above their 50 DMAs (page 9) shows a series of lower highs and lower lows since the beginning of the year. The implication is one of fewer components participating in any market strength.
The data remains a mixed bag All of the McClellan OB/OS Oscillators remain neutral (All Exchange:-7.64/+15.28 NYSE:-8.99/+32.49 NASDAQ:-21.15/-3.61). And while the Total Put/Call Ratio (contrary indicator) shows the crowd growing a bit nervous at 1.1, the OEX Put/Call Ratio (smart money) remains bearish as the pros continue their heavy put exposure at 1.74 as they expect near term weakness. As well, the Gambill Insider Buy/Sell Ratio persists with its cautionary message as insiders remain active sellers at these levels with a 7.5 reading.
In conclusion, there are some reasons for some near term concern, as noted above. However, until the charts actually show some violations of support that would darken the picture, we are inclined to maintain 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; 5,576/NA
DJT: 9,000/9,325
MID: 1,659/1,710
RTY: 1,356/1,357
VALUA: 5,290/5,393