Short-Term Outlook Remains Neutral

More Resistance Levels Violated

Opinion

All of the indexes closed modestly higher yesterday with positive internals as volumes declined slightly from the prior session. All closed at or near their intraday highs while two of the indexes managed to close above resistance. As such, the charts remain in their current uptrends but the data continues to flash some warning lights leaving us with our near term “neutral” outlook for the indexes. The intermediate term remains “neutral/positive” as breadth continues to expand with better participation among market sectors as well.

• On the charts, all of the indexes closed higher yesterday and at or near their intraday highs as breadth remained positive. While the gains were modest, the RUT (page 4) and VALUA (page 5) both managed to close above their near term resistance levels while the DJT (page 3) and MID (page 4) closed at resistance. Volumes declined from the prior session implying some lessening of demand but the results were positive nonetheless. All of the stochastic levels remain quite overbought but have yet to yield bearish crossover signals. As such, the trends remain positive but are seeing some slowing of momentum.

• The data continues to cast some shadows as all of the McClellan OB/OS Oscillators remain very overbought (All Exchange:+130.11 NYSE: +141.19 NASDAQ:+123.65). The ISEE Put/Call Ratio (contrary indicator) has turned bearish at 14.8, joining the OEX Put/Call Ratio (smart money) at 1.46 revealing the pros weighted in puts and still expecting a degree of weakness over the near term.

• However, the new Institutional Investor Bear/Bull Ratio (contrary indicator) shows advisors now only slightly bullish at 34.3/36.4 while insiders remain buyers with a mildly bullish 27.3 Gambill Insider Buy/Sell Ratio. Our net takeaway from the data is that, in spite of the OB/OS Levels, we may see some sideways/neutral action in the indexes over the near term. However, our ears are pressed to the ground for any notable negative signals.

• The intermediate term outlook remains “neutral/positive” as breadth continues to improve including a broadening of sector participation including recent improvements in basic materials, healthcare, financials and energy.

• Forward 12-month earnings estimates for the SPX from IBES have been reduced from $123.12 to $122.69 leaving a 6.18% forward earnings yield with a 16.2 forward multiple.
• SPX: 1,903/1,990
• DJI: 16,204/17,122
• NASDAQ; 4,504/4,715
• DJT: 7,057/7,513
• MID: 1,308/1,374
• Russell: 1,021/1,107
• VALUA: 4,062/4,369