Near-Term Outlook Turns “Neutral”Opinion
The bulk of the indexes closed higher yesterday with the one exception of the DJT posting a loss. Internals were positive on the NYSE and NASDAQ as volumes rose on both exchanges from the prior session. Some minor improvements were seen on a few of the charts while the data remains mostly neutral. Given the improvements noted below, we believe there has been enough of a shift in the evidence to change our near term “neutral/negative” outlook to “neutral”.
- On the charts, the only index to close lower Thursday was the DJT (page 3) that also closed back below its 50 DMA. The rest closed higher and at the mid to upper end of their intraday ranges. The gains came on positive breath and higher volume, adding some credibility to the move. Both the COMPQX (page 3) and NDX (page 3) managed to close above their short term downtrend lines while the MID (page 4) closed back above its 50 DMA. So we now find all of the indexes, with the exception of the SPX (page 2) and DJI (page 2) that remain in short term downtrends, in neutral sideways patterns as breadth also finds the cumulative the advance/decline lines for the All Exchange, NYSE and NASDAQ turning neutral form negative. The dominance of neutral sideways patterns plus the improvement in breadth are largely the cause of the change in our short term outlook.
- The bulk of the data is neutral as well including all of the McClellan OB/OS Oscillators (All Exchange:-11.66/+28.41 NYSE:-8.81/+39.57 NASDAQ:-15.04/+19.99). The Equity (0.61) and Total (0.82) Put/Call Ratios are neutral as well as the OpenInsider Buy/Sell Ratio at 45.3. The OEX Put/Call Ratio is offering some encouragement as the pros remain very long calls at 0.51 as they expect near term strength to continue. Valuation finds the forward 12-month P/E for the SPX based on forward 12 month consensus earnings estimates from Bloomberg of $161.47 at a 16.5 multiple versus the “rule of 20” implied fair value of 17.0.
- In conclusion, the dominance of neutral patterns on the index charts with improved breadth and generally neutral data are, in our opinion, sufficient to alter our short term expectations for the indexes from “neutral/negative” to “neutral”.
- SPX: 2,613/2,683
- DJI: 23,825/24,690
- NASDAQ: 6,959/7,177
- NDX: 6,459/6,700
- DJT: 10,391/10,788
- MID: 1,873/1,912
- Russell 1,545/1,595
- VALUA: 6,028/6,142