Short Term Outlook Remains “Neutral”
Opinion: The indexes closed mixed Friday with negative internals on the NYSE while NASDAQ internals were mixed. Volumes declined from the prior session on both exchanges, taking some of the luster off of the SPX and COMPQX making new closing highs. The trends of the various indexes remain mixed along with the signals coming from the data dashboard. As such, and in spite of some new highs being achieved, we remain “neutral” in our short term outlook for the major equity indexes while extended valuation keeps the intermediate view “neutral” as well.
· On the charts, the indexes closed mixed Friday with the SPX (page 2) and COMPQX (page 3) closing above resistance to new closing highs. However, breadth was negative on both exchanges as volumes declined from the prior session. The internals suggest a selective move with weakening strength, in our opinion. And while the SPX and COMPQX are in uptrends, the rest remain in sideways patterns while the DJT (page 3) is actually in a short term downtrend. In fact, very little progress has been made by the indexes since the middle of last month. We would also note the VIX (page 9) is back at its lows suggesting some possible resurgence of volatility.
· The data remains mixed with the bulk of the McClellan OB/OS Oscillators neutral (All Exchange:+23.05/+41.06 NYSE:+32.06/+51.79 NASDAQ:-5.17/+16.63) with only the 21 day NYSE mildly overbought. The Equity Put/Call Ratio (0.68) and WST Ratio/Composite (41.4/113.3) are neutral while the OEX Put/Call Ratio (smart money) finds the pros long calls at .75 and expecting strength. However, both the AAII Bear/Bull Ratio and Investors Intelligence Bear/Bull Ratio (contrary indicators) find the crowd overly bullish at 25.23/46.2 and 18.4/60.2 respectively. The lack of any concern on the part of the crowd is disconcerting, in our opinion.
· In conclusion, in spite of two new highs being achieved Friday, poor internals combined with the issues discussed above continue to suggest to us a “neutral” near term outlook for the indexes remains appropriate. High forward valuation of the SPX at 17.4 keeps the intermediate term view “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $130.93 leave a 5.75 forward earnings yield on a 17.4 forward multiple, a 12 year high.
SPX: 2,237/NA
DJI: 19,735/19,975
COMPQX; 5,432/NA
DJT: 9,041/9,157
MID: 1,659/1,690
RTY: 1,352/1,388
VALUA: 5,262/5,388