Breadth Remains Anemic
Opinion: The indexes closed mixed yesterday with mixed internals on the NYSE and positive internals on the NASDAQ. Volumes declined from prior sessions on both exchanges. No technical events of note took place while the data remains largely in neutral territory. The sideways action of the indexes of late has failed to surpass resistance levels for the second day in a row. And while we would still be neutral for the short term, the news hitting the tape is now dropping the futures and suggestive of the possibility of the support levels being tested over the relatively near term. We remain cautious for the intermediate term given continuing anemic market breadth and extended valuation.
- On the charts, the indexes closed mixed with only the MID (page 4) and RUT (page 4) closing in the plus column. The magnitude of the day’s moves was minor. All of the large cap indexes attempted to violate resistance for the second day in a row and failed. As such, the current sideways trading ranges remain intact. However, the Turkish/Russian news hitting the tape this morning has the futures looking negative and could result in the lower end of the ranges being tested.
- The data remains mixed and non-instructional. All of the McClellan OB/OS Oscillators are neutral (NYSE:+3.05/-11.55 NASDAQ:+18.97/-11.71) along with the Equity and OEX Put/Call Ratios at .60 and 1.2. The Rydex Ratio (contrary indicator), however, remains cautionary as the leveraged ETF traders are back near their pre-correction high levels of leveraged long exposure at 64.4.
- One of our primary concerns continues to be anemic market breadth that we believe poses some potentially significant risk over the intermediate term. As the large cap indexes have been attempting to revisit their highs, the NYSE A/D has made a lower high while the NASDAQ A/D has made a lower low and lower high while remaining in its downtrend. Market history has shown this dynamic usually ends badly. When the forward p/e for the SPX at 16.6X and near its decade peak is added into the mix, our concerns increase. As such, we remain cautious for the more intermediate term outlook.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.03% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $125.84 versus the 10 Year Treasury yield of 2.25%.
SPX: 2,020/2,102
DJI: 17,150/17,903
COMPQX; 4,923/5,123
DJT: 7,895/8,330
MID: 1,394/1,465
RUT: 1,145/1,180