Sentiment Still Cautionary
Opinion: Our next report will be Monday, July 7. Yesterday’s action left some improvements on a few of the index charts while others remain stuck in their current sideways patterns. Sentiment continues to flash a cautionary yellow light that has yet to have any negative influence on the markets. As such, the current trends of the indexes should continue to be respected whether bullish or neutral and assumed to be continued over the near term.
- On the charts, yesterday’s mixed action took place on positive breadth and up/down volume. So, the flat and neutral action for the SPX (page 2) and DJI (page 2) could be masking some strengthening internals. The DJT (page 3), although having yet to overcome resistance, is seeing a series of higher lows implying the likelihood of said resistance being overcome.
- Meanwhile, the RUT(page 4) did violate its near term resistance that is now adjusted to 1,195 while the COMPQX (page 3) made a new 13 year closing high and the MID (page 4) made a new all-time closing high. So from the charts, the signals are the trends for the COMPQX, MID and RUT are bullish while the DJT has a decent probability of surpassing resistance over the near term. The SPX and DJI remain neutral.
- The data is mostly unchanged. The McClellan OB/OS Oscillators remain mostly neutral (NYSE:+24.37/+69.17 NASDAQ:+27.72/+36.98) with only the 21 day NYSE overbought. Sentiment, however, is still preaching caution with a .50 Equity Put/Call Ratio (contrary indicator) an 8% and bearish Gambill Insider Buy/Sell Ratio, a very elevated detrended Rydex Ratio (contrary indicator) and stratospheric 6.78 OEX Put/Call Ratio (smart money).
- The story remains one of an overly optimistic crowd while insiders and the pros are nervous. Such conditions can exist for extended periods without market response. Ignoring them, however, can prove to be a fool’s game.
- In conclusion, the near term outlook is neutral to bullish depending on the respective index chart patterns while sentiment should be kept in our peripheral vision.
- 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 2.52%.
See Attached PDF