Data Remains Neutral
All of the indexes closed higher Tuesday with positive internals on the NSYE and NASDAQ as volumes increased on both exchanges from the prior session. While most of the gains were modest, they left all of the indexes in their current near term uptrends except the RTY remaining neutral. The data has yet to raise any notable warning signals. However, valuation that has previously been undervalued is now encroaching on fair value. With that said, we see no shift in the evidence at this point to alter our near term “neutral/positive” outlook for the major equity indexes.
On the charts, all of the indexes closed higher yesterday with positive internals on higher trading volumes.
- No major technical events occurred on the charts leaving all in near term uptrends with the exception of the RTY (page 5).
- The COMPQX (page 3), DJI (page 2), NDX (page 3) and SPX (page 2) are close to important resistance levels that, if violated, would likely brighten the technical picture further. However, that has yet to transpire.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs.
The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-0.03 NYSE:+5.22 NASDAQ:-2.33). The fact that they are not overbought given the recent rally is a positive, in our opinion.
- The Open Insider Buy/Sell Ratio remains neutral at 64.9 with the % of SPX stocks trading above their 50 DMAs at neutral with a 75.3% reading.
- Crowd sentiment readings remain neutral with a neutral 0.71 detrened Rydex Ratio and 25.0/36.0 AAII Bear/Bull Ratio. We reiterate we have found that excessive enthusiasm displayed in these two indicators tend to be prescient signals prior to market contractions. That has yet to occur.
- The 12 month forward consensus earnings estimate from Bloomberg for the SPX now stands at $171.71, leaving the forward p/e at a 17.0 multiple while the “rule of twenty” finds fair value at 17.4 The narrowing of this spread may have the potential to slow the pace of progress. The upcoming earnings season may be a catalyst in either direction.
In conclusion, we are maintaining our near term market outlook at “neutral/positive” as no evidence has surfaced at this point to cause a change in our opinion although we would note valuation is not nearly as cheap as it was a few months ago.