Near-Term Outlook Remains “Neutral”
The major equity indexes closed mixed Tuesday with positive internals on the NYSE and NASDAQ as overall trading volumes rose from those of the previous session. Some indexes closed above resistance leaving all in short term uptrends. The data is a mix of neutral and negative projections. As such, we are maintaining our near term “neutral” outlook for the major equity indexes as the balance of chart and data information appears to be relatively balanced between positive and negative projections.
On the charts, the indexes closed mixed Tuesday with positive internals on the NYSE and NASDAQ with higher trading volume.
- All closed higher with the exceptions of the COMPQX (page 3) and NDX (page 3) that have been leading the markets for the past several months.
- Of technical note, the DJT (page 4), RTY (page 5) and VALUA (page 5) closed above their near term resistance levels. The MID (page 4) closed back above its 50 DMA.
- So, all of the charts remain in short term uptrends and above their 50 DMAs. T
- he cumulative advance/decline lines for the All Exchange, NYSE and NADAQ remain positive and above their 50 DMAs.
- However, the other side of the scale finds all of the indexes in overbought territory on their stochastic levels as a result of recent strength, suggesting retracement potential.
- High “volume at price” (VAP) levels are generally supportive.
The data has remains mixed.
- All of the 1-day McClellan OB/OS Oscillators are deeper into overbought territory (All Exchange:+71.66 NYSE:+71.14 NASDAQ:+75.4). As such, like the stochastic readings, they imply retracement potential.
- The detrended Rydex Ratio (contrary indicator) is neutral at -0.45 as is the % of SPX stocks trading above their 50 DMAs at 62.2.
- The new AAII Bear/Bull Ratio (contrary indicators) remained bullish at 40.0/26.67.
- The Investor’s Intelligence Bear/Bull Ratio (contrary indicator) shifted from bearish to neutral at 18.7/44.9 .
- The Open Insider Buy/Sell Ratio remains neutral but dropped to 50.9.
- Valuation continues to appear appealing, assuming current estimates hold, with the 12-month forward consensus earnings estimate from Bloomberg for the SPX at $171.67, leaving the forward p/e at a 17.4 multiple while the “rule of twenty” finds fair value at 18.3.
- We would note however, said earnings estimates have been declining over the past week from $172.25 as the markets have moved higher.
- The 10-Year Treasury yield rose to 1.62%.
- The earnings yield stands at 5.77%.
In conclusion, while the charts are giving generally positive signals, we believe there is enough counterbalancing evidence present to maintain our near term “neutral” outlook for the major equity indexes.
SPX: 2,922/2,980
DJI: 26,250/26,870
Nasdaq: 7,948/8,142
NDX: 7,663/7,903
DJT: 10,060/10,547
MID: 1,875/1,934
Russell: 1,484/1,551
VALUA: 5,987/6,207