Short-Term Outlook Remains Neutral

Data Suggests Some Lift Potential

Opinion

All of the indexes closed lower Friday with negative internals on both exchanges. Volumes swelled due to triple witching expiration. No significant events occurred on the charts. However, some of the data is now implying some potential lift over the near term. Yet we remain “neutral” for the near term given the fact that all but the COMPQX are currently confined within their new, lower trading ranges post the declines on 9/9. Violations of resistance would be required to become more positive in that regard. Valuation of the SPX keeps our intermediate term View at “neutral” as well.

• On the charts, all of the indexes closed lower Friday with negative internals and heavy trading volumes due to options expiration. No technical events of import were registered. All closed near the midpoints of their intraday ranges with the exception of the COMPQX (page 3) that closed near its intraday high. Given the fact that the COMPQX and RUT (page 4) are the only indexes trading above their 50 DMAs, we continue to be of the opinion that the mid and small cap issues continue to show better relative performance versus the large caps at this stage. As well, the COMPQX is the only index not confined to a new lower trading range post the 9./9 market decline. Violations of resistance by the other indexes would be required in order to be more positive in our near term expectations.

• The data is largely neutral but does have a few encouraging signs for the near term, in our opinion. The NYSE 1 day McClellan OB/OS Oscillator is very oversold at -128.66 while the OEX Put’/Call Ratio (smart money) now finds the pros heavily weighted in calls at 0.5 and expecting some bounce. While the Gambill Insider Buy/Sell Ratio remains within its neutral range, it has doubled over the past week to 20.9 suggesting insiders have become more inclined to view recent weakness in their stock as a buying opportunity. As such, the data, in our opinion, is turning slightly encouraging for the short term.

• In conclusion, the charts and data continue to suggest a near term “neutral” outlook for the indexes as the higher probability while historically high SPX valuation keeps us intermediate term “neutral” as well.

• Forward 12-month earnings estimates for the SPX from IBES of $128.37 leave a 6.0% forward earnings yield on a 16.7 forward multiple.
• SPX: 2,119/2,160
• DJI: 18,010/18,374
• NASDAQ: 5,179/5,272
• DJT: 7,744/7,957
• MID: 1,502/1,553
• Russell: 1,209/1,233
• VALUA: 4,810/4,904