Data More Cautionary
Opinion
The balancing act continues. Yesterday’s gains on the major equity indexes resulted in some technical improvements on the charts while some of the data has again become more cautionary. The net result of our interpretation of these current conditions is the short term outlook remains fairly neutral with a slight negative bias suggested by the data.
- On the charts, breadth and up/down volumes were positive on the rally while overall volume expanded on the NYSE but contracted slightly on the NASDAQ. The key technical events were the COMPQX (page 3) closing at a new 13 year high while both the SPX (page 2) and MID (page 4) managed to close back above their short term uptrend lines that had been violated in the prior session. As such, the chart action was fairly positive.
- The data, however, continues to flash some yellow warning lights coming mostly from sentiment. The new Investors Intelligence Bear/Bull Ratio (contrary indicator) shows advisors as being way too bullish at 16.3/60.2 while the Gambill Insider Buy/Sell Ratio at a low and bearish 6% as of 6/24 shows insiders as lacking any interest in buying their own stock at current levels. More warnings come from the Equity Put/Call Ratio (contrary indicator) with the “crowd” very long calls at .49 while the pros measured by the OEX Put/Call Ratio (smart money) are once again betting very heavily on expected weakness at 3.33. The WST Ratio and its Composite are also bearish at 67.5 and 154.6 respectively.
- The only outlier from the data are the McClellan OB/OS Oscillators (NYSE:+6.85/+63.83 NASDAQ:+12.72/+19.01) that are solidly neutral with the exception of the NYSE 21 day which is overbought. We would note sentiment data can remain elevated for extended periods before markets eventually respond. As such, the OB/OS levels may end up being more noteworthy over the short term. Nonetheless, yellow signals exist.
- For the longer term, we remain bullish on equities as they remain undervalued with a 6.38 forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.11 versus the 10 Year Treasury yield of 2.56%.
- SPX: 1,926/?
- DJI: 16,717/?
- NASDAQ: 4,285/?
- DJT: 7,9285/?
- MID: 1,395/?
- RUT: 1,133/1,189