Near-Term Outlook Remains "Neutral/Negative"

Near-Term Outlook Remains "Neutral/Negative"

All of the major equity indexes closed lower Monday with negative internals as overall trading volumes declined from Friday’s positive session. All closed at or near their intraday lows. No technical events of major import were generated on the charts leaving all in short term downtrends. The data is generally neutral including all of the McClellan 1 day OB/OS Oscillators. While valuation appears attractive, market breadth is quite questionable. As such, we are maintaining our near term “neutral/negative” outlook for the major equity indexes at this time.

On the charts, all of the indexes closed lower yesterday with negative internals on lighter trading volumes than the prior positive session.

All closed at or near their lows of the day after several testing their near term resistance levels, all of which failed.

We would note the SPX (page 2) and DJI (page 2) both closed back below their DMAs, leaving only the NDX (page 3) above that metric.

All remain in near term downtrends with cumulative breadth neutral on the All Exchange and NYSE while the NASDAQ’s remains negative.

In fact, our daily review of over 1200 stock charts adds to our concern as we see significantly more names looking like they are rolling over from extended levels with very few appearing to be breaking out from extended bases.

Overall trading volumes of late have also been suggesting a period of distribution has been taking place.

All stochastic readings are neutral while high “volume at price” (VAP) levels are supportive on the SPX and DJI but resistant on the rest.

The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-40.92 NYSE:-43.9 NASDAQ:-39.2).

The detrended Rydex Ratio (contrary indicator) is a neutral -0.12 as is the % of SPX stocks trading above their 50 DMAs at 47.1%.

The new AAII Bear/Bull Ratio (contrary indicators) remained neutral at 33.0/28.33.

However, the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) remains bearish at 17.1/55.3 suggesting an excess of bullish sentiment on the part of investment advisors.

The Open Insider Buy/Sell Ratio is also neutral at 62.9.

Valuation seems appealing with forward 12-month earnings estimates for the SPX at $175.05 via Bloomberg, leaving the forward p/e at a 16.8 multiple while the “rule of twenty” finds fair value at 18.5.

The 10-Year Treasury yield stands at 1.55%.

The earnings yield is 5.96%.

In conclusion, the failure of the indexes to penetrate their respective resistance levels and downtrend lines off of last week’s oversold conditions, combined with weakening market breadth and a bifurcation of index performance continue to suggest we maintain our near term “neutral/negative” outlook for the major equity indexes.

SPX: 2,893/2,956
DJI: 26,027/26,562
Nasdaq: 7,787/7,995
NDX: 7,538/7,781
DJT: 9,818/10,183
MID: 1,861/1,903
Russell: 1,471/1,515
VALUA: 5,956/6,076