Data Remains Neutral/Negative
Opinion: The bulk of the indexes closed higher Friday with positive internals on the NYSE and NASDAQ. Only the DJI (page 2) closed lower on the day. However, volumes declined on both exchanges with most of the indexes closing near their intraday lows. Not much changed in terms of the charts while the data continues to be a mix of neutral and negative signals. We remain “neutral/negative” for the near term, in spite of the positive futures this morning, due to our interpretation of the charts and data suggesting risk outweighs reward at this stage. High forward valuation of the SPX keeps the intermediate term view “neutral”.
· The markets closed mostly higher Friday but with little movement in either direction. Only the DJI closed lower on the day. While internals were positive, volumes declined versus the prior two down sessions. The lower volumes could be seen as a negative shift in supply/demand. Most of the indexes closed near their lows of the day with the MID (page 4) flashing a “bearish stochastic crossover” signal. Yet no support levels have been violated at this point in time. The VIX (page 9) tested resistance but did not violate as it now appears to be in a sideways trading range. As such, the charts have a generally neutral appearance on the surface. However, the All Exchange advance/decline has turned negative and below its 50 DMA suggesting a possible weakening of market breadth.
· The data remains a mix of neutral and negative signals. All of the 1 day McClellan OB/OS Oscillators are neutral (All Exchange:-3.7 NYSE:+4.77 NASDAQ:-4.9) but the NYSE and NASDAQ 21 day readings are now overbought at +52.8 and +65.47 respectively. The OEX Put/Call Ratio (smart money) shows the pros slightly weighted in puts at a mildly bearish 1.41 while insiders, measured by the Gambill Insider Buy/Sell, Ratio, still finds them ramping up their selling activity at a bearish 8.3. Crowd sentiment has become overly bullish as well now that the DJI has rallied over 1,000 points. As such, the data still has a somewhat negative forecast for the near term, in our opinion.
· In conclusion, we remain “neutral/negative” for the markets near term prospects as we believe both the data and charts suggest risk now outweighs reward post the sizable post-election rally. The forward valuation of the SPX remaining ear historic highs keeps the intermediate term view “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $129.74 leave a 5.92 forward earnings yield on a 16.9 forward multiple.
SPX: 2,182/NA
DJI: 18,862/NA
COMPQX; 5,242/5,364
DJT: 8,736/9,140
MID: 1,583/NA
RTY: 1,300/NA
VALUA: 5,094/NA