Stocks and Our Outlook Are Stuck in Neutral: What It Would Take to Change That

 | May 09, 2018 | 11:56 AM EDT
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The bulk of the stock indices remain stuck in sideways patterns these days. In fact, almost all remain confined within their ranges that have been in place since late March.

What's more, index data is not yielding any strong signals regarding near-term market directional probabilities. Thus, we maintain our near-term "neutral" outlook for the major eq given current conditions.

Charts

On the charts, the indices saw minimal moves up and down Tuesday with slightly positive internals on higher than prior volumes. The Nasdaq Composite Index (see below), Dow Jones Transports, S&P MidCap 400 Index, Russell 2000 and Value Line Arithmetic Index posted minor gains with some tests of resistance.

Source: Worden

The Value Line Index did, in fact, close above resistance (see below) but new resistance is within just a few points of current levels. The rest posted minor losses. Only the Nasdaq Composite, Nasdaq 100 and Value Line are in near-term uptrends with the rest neutral.

Source: Worden

Meanwhile, we now find the stochastic levels for the Nasdaq indices and MidCap 400 in overbought territory. However, stochastics can remain overbought for extended periods, thus not making them actionable until bearish crossovers are registered.

Data

The data is entirely neutral including, all of the McClellan Overbought/Oversold Oscillators (All Exchange:+27.75/+30.17 NYSE:+25.72/+30.17 NASDAQ:+29.56/+27.39). The Equity Put/Call (0.61), Total P/C (0.83) and OEX P/C (1.0) ratios are all neutral as well as is the OpenInsider Buy/Sell Ratio (41.9) and detrended Rydex Ratio (0.03).

As a group, these metrics are not sending any notable near-term directional message.

Valuation

The forward P/E multiple for the S&P 500 based on 12-month consensus earnings estimates from Bloomberg of $162.50 per share is 16.4x, versus the "rule of 20" implied fair value of 17.0s.

Still Looking for Evidence

Until we see evidence of violations of either support or resistance on the charts or a notable shift in the data, our discipline requires us to keep our near term "neutral" outlook for the major equity indices in place.

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