Forecast for Stocks Brightens as Charts Show Improvement

 | Apr 27, 2018 | 10:27 AM EDT
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What a difference a day makes.

Enough positives happened Thursday on the charts to alter our short-term expectations to a more positive stance. Let's break down the current state of the index charts, data and valuations to see where we stand.


Source: Worden

The only index to close lower Thursday was the Dow Transports, which also closed back below its 50-day moving average. The rest closed higher and at the mid-to-upper end of their intraday ranges. The gains came on positive breadth and higher volume, adding some credibility to the move.

Both the Nasdaq Composite (above) and Nasdaq 100 (below) managed to close above their short-term downtrend lines while the S&P MidCap 400 Index closed back above its 50 DMA. So, we now find all of the indices, with the exception of the S&P 500 and Dow Jones Industrial Average that remain in short-term downtrends, in neutral sideways patterns.

Source: Worden

Breadth also finds the cumulative the advance/decline lines for the All Exchange, NYSE and NASDAQ turning neutral from negative. The dominance of neutral sideways patterns plus the improvement in breadth are largely the cause of the change in our short-term outlook.


The bulk of the data is neutral, including all of the McClellan Overbought/Oversold Oscillators (All Exchange:-11.66/+28.41 NYSE:-8.81/+39.57 NASDAQ:-15.04/+19.99). The Equity (0.61) and Total (0.82) Put/Call Ratios are neutral as well as is the OpenInsider Buy/Sell Ratio at 45.3.

The OEX Put/Call Ratio is offering some encouragement as the pros remain very long calls at 0.51 as they expect near-term strength to continue.


The forward 12-month P/E multiple for the S&P 500 based on 12-month consensus earnings estimates from Bloomberg of $161.47 per share is 16.5x, versus the "rule of 20" implied fair value of 17.0x.

All in all, the dominance of neutral patterns on the index charts with improved breadth and generally neutral data are, in our opinion, sufficient to change our near-term view to "neutral" from "neutral/negative."

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