Short Term Outlook Remains “Neutral/Positive”
Opinion: Most of the indexes closed lower Friday with negative internals on the NYSE while NASDAQ internals were mixed. Volumes rose on both exchanges from the prior session. A couple of minor negatives occurred on the charts while the SPX advance/decline deteriorated further. However, the advance/decline lines for the rest of the indexes remain positive. The data remains almost entirely neutral and still unable to create a strong implication as to near term probable trajectories for the major indexes. As such, our near term outlook remains “neutral/positive” while extended valuation keeps our intermediate term view at “neutral”.
· On the charts, only the COMPQX (page 3) managed to close in the green on Friday, post Janet Yellen’s comments. Internals were negative on the NYSE while the NASDAQ saw positive up/down volume but on negative breadth. The SPX (page 2) and VALUA (page 5) both closed below their short term uptrend lines, leaving their patterns now at neutral/sideways. Both the SPX and DJI (page 2) tested their support levels with the DJI stochastic now crossing into oversold territory. No support levels were violated, thus leaving the indexes a mix of positive and sideways patterns.
· We would note the % of SPX issues trading above their 50 DMAs (page 9) made a lower low signaling internal weakness. However, the NYSE and NASDAQ advance/decline lines remain positive. We suspect this may imply a move toward the mid and small cap sectors.
· The data remains almost entirely neutral. The NYSE 1 day McClellan OB/OS Oscillator is mildly oversold at -52.48. The rest are neutral (All Exchange:-37.58/+19.64 NYSE:-52.48/+25.0 NASDAQ:-21.51/+15.37). The OEX Put/Call Ratio (smart money) at 1.11, Gambill Insider Buy/Sell Ratio at 15.3 and WST Ratio/Composite at 57.8/135.8 are all neutral as well. The Total and Equity Put/Call Ratios (contrary indicators) show crowd fear increasing and long puts at 1.04 and 0.73, sending a mildly positive note. However, they are not enough, in our opinion, to tilt the current evenly balance data scales.
· In conclusion, although Friday saw some minor chart signals, none of the action, combined with the data, is sufficient to alter our near term “neutral/positive” view for the markets. High valuation keeps our intermediate term view at “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $127.22 leave a 5.87% forward earnings yield on a 17.1 forward multiple.
SPX: 2,160/2,194
DJI: 18,374/18,637
COMPQX: 5,160/NA
DJT: 7,795/7,974
MID: 1,534/NA
RUTNU: 1,221/1,266
VALUA: 4,904/NA