Near-Term Outlook Remains “Neutral”Opinion
All of the indexes closed higher Wednesday with similar ferocity with the declines seen in the preceding session. All closed at or near their intraday highs with positive internals on the NYSE and NASDAQ as volumes dipped from those on Tuesday’s selloff. One index made a new closing high as the rest remain a mix of neutral and positive trends. The data is a mix of neutral and negative signals. In our opinion, yesterday’s strength was not sufficient to alter our near term “neutral” outlook for the major equity indexes.
- On the charts, all of the indexes closed higher yesterday with positive internals on strong volume although said volume was lower than that of the preceding selloff. The DJI (page 2) closed back above its 50 DMA but remains near term neutral while having made a series of lower highs since the beginning of the year. The same can be said for the SPX (page 2). The RTY (page 5), in contrast, made a new closing high while the VALUA (page 5) closed back above its short term uptrend line. The COMPQX (page 3) and VALUA tested resistance but failed to violate on a closing basis. So the COMPQX, RTY and VALUA are in near term uptrends with the rest remaining neutral. The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turned back to positive and above their 50 DMAs.
- The data is mostly a mix of neutral and negative readings. The 1 day McClellan OB/OS Oscillators are neutral but the 21 day levels are back to overbought (All Exchange:+23.78/+59.23 NYSE:+30.43/+63.48 NASDAQ:+18.74/+58.46). And while the Equity Put/Call Ratio (0.56) and OpenInsider Buy/Sell Ratio (44.2) are neutral, the pros have loaded up on puts with a very bearish 2.12 OEX Put/Call Ratio as they bet on a return of weakness. The Total P/C (contrary indicator) is bullish at 0.98. Valuation finds the forward 12 month P/E for the SPX based on forward 12-month consensus earnings estimates from Bloomberg of $163.23 at a 16.7 multiple versus the “rule of 20” implied fair value of 17.2.
- In conclusion, the “pile out/pile in” action of the past two sessions combined with the charts and data leaves us maintaining our near term “neutral” outlook for the major equity indexes at this time.
- SPX: 2,671/2,741
- DJI: 24,357/25,017
- Nasdaq: 7,283/7,475
- NDX: 6,769/7,017
- DJT: 10,713/10,995
- MID: 1,917/1,979
- Russell: 1,608/NA
- VALUA: 6,124/6,288