“Neutral” Short-Term Outlook Unchanged

Data Remains Mostly Neutral

Opinion

The indexes closed mixed yesterday with mixed internals on the NYSE and positive internals for the NASDAQ. Volumes declined from the prior session. There were a few encouraging events on the charts, but not of great enough import to alter their current consolidation patterns. The data continues to express its largely neutral tone. As such we continue to view the near term outlook for the indexes as “neutral”. The intermediate term remains “neutral” due to historically extended valuation.

• On the charts, the SPX (page 2) and DJI (page 2) closed lower on the day as the rest posted modest gains. Volumes were tepid with mixed NYSE internals but positive internals on the NASDAQ. The volume and breadth characteristics were those we associate with sideways patterns. The SPX and DJI did test their resistance levels, an encouraging sign, but were unable to surpass them. A violation of those levels would likely alter the picture. The COMPQX (page 3) managed to close above its short term downtrend line, also an encouragement. However, none of these signals were strong enough, in our opinion, to change the short term neutral trends. The DJT (page 3) remains below all of its DMAs as well as its short and long term downtrend lines.

• The data remains stuck largely within its neutral message. All of the McClellan OB/OS Oscillators remain neutral (All Exchange:+29.54/+11.98 NYSE:+26.24/+33.79 COMPQX:+34.84/-11.06). The Equity Put/Call Ratio is a neutral 0.60 along with the Gambill Insider Buy/Sell Ratio that has dropped to 18.0. The new AAII Bear/Bull Ratio is neutral as well at 26.25/31.06. Only the OEX Put/Call Ratio (smart money) is an outlier at a very bearish 2.64 as the pros have now gone long puts in expectation of some near term weakness. As such, there is not enough weight on either side of the data scales to imply a near-term direction move beyond neutral.

• In conclusion, neither the charts nor data are sending strong enough messages at this stage to alter our near term “neutral” outlook for the major indexes.

• Forward 12 month earnings estimates for the SPX from IBES of $125.35 leave a 5.97% forward earnings yield on a 16.7 forward multiple.
• SPX: 2,066/2,109
• DJI: 17,599/17,971
• NASDAQ; 4,797/4,913
• DJT: 7,420/7,669
• MID: 1,457/1,504
• Russell: 1,114/1,161
• VALUA: 4,552/4,713