Opinion: The bulk of the indexes closed higher Wednesday with the DJI being the one outlier. Internals were positive on the NYSE and NASDAQ as NYSE volumes rose from the prior session while NASDAQ volumes dipped. Some improvement was seen on the charts with two more resistance levels being broken. However, the data finds the 1 day McClellan OB/OS Oscillators remain overbought with the balance of the data mostly neutral. So while we remain “positive” in our near term outlook for the major equity indexes, the OB/OS levels suggest the rally experienced from the beginning of the month may now see some slowing of progress.
- On the charts, the only index to close lower yesterday was the DJI (page 2). The rest posted gains with the NDX (page 3) and VALUA (page 5) closing above their respective resistance levels. So we find all of the charts in short term uptrends and above their 50 DMAs while the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs as well. Yet we would again note that all of the stochastic levels, while not having flashed bearish crossover signals, are well into overbought territory.
- The data remains mostly neutral. However, the 1 day McClellan OB/OS Oscillators remain overbought with the 21 day levels neutral (All Exchange:+62.43/+21.5 NYSE:+71.05/+35.95 NASDAQ:+54.71/+9.29). We are of the opinion that now that the 1 day levels have flipped from oversold to overbought, there may be some slowing of progress for the indexes. The majority of the rest of the data is neutral including the Equity P/C (0.56), OEX P/C (1.04) and OpenInsider Buy/Sell Ratio (36.3). The Total P/C (contrary indicator) is a bullish 0.96. Forward valuation of the SPX based on consensus forward 12 month earnings estimates is a 16.8 multiple versus the “rule of 20” implied fair value at 17.1.
- In conclusion, we remain positive in our near term outlook for the major equity indexes but suspect some slowing of progress may be experienced due to the OB/OS and stochastic levels.
- Forward 12 month earnings estimates for the SPX from Bloomberg are $161.09 leaving a 5.95% forward earnings yield on a 16.8 forward multiple.
- SPX: 2,646/2,711
- DJI: 24,269/24,982
- COMPQX; 7,100/7,330
- NDX: 6,625/6,935
- DJT: 10,391/10,788
- MID: 1,887/1,928
- RTY: 1,545/1,595
- VALUA: 6,045/6,256
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