NYSE: Short Term Outlook Remains'“Neutral/Negative'

SPX Forward 12 Month Earnings Estimates Rise

Opinion: All of the indexes closed lower yesterday with negative internals as volumes declined slightly from the prior session. All closed at or near their intraday lows with a few cautionary signals being generated on the charts. In spite of the futures pointing to a positive open this morning, we remain near term neutral/negative for the short term as the data still has a somewhat negative tilt while some of the chart developments imply a shift in near term trend. The intermediate term outlook remains neutral/positive as breadth remains in good shape and IBES has lifted its forward 12 month earnings estimates for the SPX, slightly easing some of our valuation concerns.

• On the charts, all of the indexes closed lower with broadly negative breadth and up/down volumes. All closed near their intraday lows. While no support levels were violated, some trend lines were broken. Both the SPX (page 2) and DJI (page 2) closed below their short term uptrend lines while the DJT (page 3) and VALUA (page 5) closed back below their long term downtrend lines that had been breached a few days before. While the breaks in short term trend do not necessarily assure new downtrends, they do at least imply some sideways movement. We would also note the DJT is very close to flashing a bearish stochastic crossover signal. However, it is not yet “actionable”.

• The data remains of some concern as all of the 1 day McClellan OB/OS Oscillators remain overbought (All Exchange:+83.24 NYSE:+92.06 NASDAQ:+75.5). The 21 day levels remain overbought as well. The one day readings did moderate from their prior extreme levels quite notably with yesterday’s weakness. Nonetheless, they continue to suggest caution. As well, the pros have now become very heavily weighted in puts with a 2.59 OEX Put/Call Ratio (smart money) as their expectations for more weakness increased. Also, although remaining neutral, we still see a moderation in insider buying activity as the Gambill Insider Buy/Sell Ratio has slipped to 21.6. As such, the data has enough yellow lights flashing to still warrant some near term caution.

• On a positive note, IBES has lifted its forward 12 month earnings estimates for the SPX from $122.69 to $123.57, easing some concern regarding valuation and intermediate term market prospects.

• Forward 12 month earnings estimates for the SPX from IBES of $123.57 leave a 6.24% forward earnings yield on a 16.0 forward multiple.

SPX: 1,934/2,006

DJI: 16,495/17,122

COMPQX; 4,560/4,715

DJT: 7,057/7,662

MID: 1,320/1,415

RUT: 1,035/1,107

VALUA: 4,083/4,457

Morning Technical Note

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Written By: Guy S. Ortmann, CMT