Some Charts See Minor Improvement
Opinion: While Friday’s action left all of the major equity indexes higher on the day, our review of the charts and data suggests the short term outlook for said indexes is essentially neutral in nature. Most trading ranges remain in effect while some minor chart improvements, although helpful, are not sufficient to imply greater enthusiasm is warranted. The data remains a mixture of neutral, positive and negative readings giving no strong directional implications.
- On the charts, the indexes all saw gains on Fridaywith positive breadth and up/down volume as trading rose on the NYSE. However, NASDAQ trading levels fell from the prior losing session taking some shine off of its progress. Higher volume on up days for the NASDAQ has yet to be seen. The SPX (page 2) had a successful test of support but remains below its short term downtrend line while the COMPQX (page 3) managed to close fractionally above it downtrend line. Its overhead resistance remains intact, however. The MID (page 4) closed fractionally above resistance that has been adjusted to 1,370. As noted earlier, the developments are constructive but not sufficiently so as to heighten our short term expectations beyond some further neutral sideways action at this point.
- The data is still a mixed bag. All of the McClellan OB/OS Oscillators are neutral (NYSE:-23.26/+44.27 NASDAQ:-25.64/-46.18) along with the Equity Put/Call Ratio (contrary indicator) at 0.68. Meanwhile, a bullish OEX Put/Call Ratio (smart money) showing the pros expecting a lift at 0.61 is being countered by bearish signals coming from the WST Ratio and its Composite at 68.9 and 154.6 respectively. As such, the data panel is yielding no dominant directional implications currently.
- In conclusion, the overall weight of the evidence suggests to us the near term outlook for the major indexes is one of further relatively sideways action.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.6% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $123.93 versus the 10 Year Treasury yield of 2.52%.
- SPX: 1,867/1,889
- DJI: 16,331/???
- NASDAQ: 4,028/4,17
- 5DJT: 7,621/???
- MID: 1,330/1,370
- RUT: 1,095/1,130
See Attached PDF