Data Remains Neutral
All of the major equity indexes closed higher Monday with positive internals on the NJYSE and NASDAQ as trading volume declined from the prior session. No major technical events of import were generated on the charts although some did challenge near term resistance levels. The data remain neutral across the board. We would note, however, that the SPX is, in our opinion, approaching fair value. With that said, we are maintaining our near term “neutral/positive” outlook for the major equity indexes at this time given the status of the charts and data.
On the charts, all of the indexes closed higher yesterday with positive internals on lighter trading volumes.
- No important technical events were achieved although the DJI (page 2), COMPQX (page 3) and MID (page 4) did close at their respective resistance levels.
- The short term trends are unchanged with the SPX, DJI, COMPQX and NDX in uptrends with the rest neutral.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive.
- Some stochastic levels are overbought but have not yielded “bearish crossover” signals at this point.
- The VIX at 13.1 is nearing levels that have preceded periods of volatility but is not yet actionable, in our view.
The data remains neutral.
- The 1 day McClellan OB/OS Oscillators (All Exchange:+4.71 NYSE:+7.58 NASDAQ:+2.67), Open Insider Buy/Sell Ratio (52.4) and detrended Rydex Ratio (+0.36) are all neutral.
- The new AAII Bear/Bull Ratio remains neutral as well with the crowd fairly evenly split at 25.67/36.67.
- Valuation is now approaching fair value with the spread between the forward p/e for the SPX based on Bloomberg forward 12 month consensus earnings estimates of $167.01 versus the “rule of 20” fair valuation at 17.0 versus 17.4. The spread has continued to narrow over the past several weeks as estimates have declined with issuers generally cutting back their projections during the recent earnings season as the SPX has risen in price. While this does not suggest the markets can’t go higher, we are now of the opinion that participation may become significantly more selective.
In conclusion, we see no evidence yet to alter our near term “neutral/positive” outlook for the major equity indexes. However, we believe the VIX, stochastic levels and valuation may make progress a bit more difficult.