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Breadth Weakens

By Guy S. Ortmann, CMTStock MarketsDec 06, 2017 10:08AM ET
Breadth Weakens
By Guy S. Ortmann, CMT   |  Dec 06, 2017 10:08AM ET
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Data Mostly Neutral


The bulk of the indexes closed lower yesterday with the one exception of the NDX. Internals were negative on the NYSE and NASDAQ as volumes declined from the prior session. No support levels or trend lines were violated on the charts although some warning signs did appear while breadth has weakened over the past few sessions. The data is mostly neutral with a couple of caution signals being registered. As such, we remain of the opinion that the current mix of near term trends on the indexes should be respected on their individual merits as described below.

  • On the charts, all but the NDX (page 3) closed lower yesterday and at or near their intraday lows with negative market internals. No support or near term trend lines were violated but the COMPQX (page 3) did close on support and its short term uptrend line. Any further weakness there would cast a longer shadow for that index. Potential warning signals were registered on the SPX (page 2), MID (page 4) and VALUA (page 5) as all flashed “bearish stochastic crossover” signals. Said signals were seen on the NDX and COMPQX last week and just prior to their recent pullbacks. What may be of greater import is the recent weakening in overall market breadth as the All Exchange cumulative advance/decline line has turned neutral from positive and the NASDAQ A/D has now turned negative and below its 50 DMA. They describe a recent deterioration in overall market strength. Only the NYSE cumulative A/D remains positive. So the near term chart trends are neutral for the NDX and RTY (page 5) as the rest remain currently positive.
  • The data is mostly neutral with a few yellow flags. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-15.69/+12.23 NYSE:-6.6/+24.73 NASDAQ:-26.59/+1.82). The Total and Equity Put/Call Ratios are also neutral at 0.83 and 0.57 respectively as is the Open Insider Buy/Sell Ratio at 28.5. However, warnings are coming from the OEX Put/Call Ratio at a very bearish 3.56 as the pros have loaded up on puts along with a bearish 18.21 ISEE Sentiment Index.
  • In conclusion, weakening breadth suggests a bit more caution may be warranted for the very near term while valuation remains near historic highs. Yet the current index trends should be respected until proven otherwise.
  • Forward 12-month earnings estimates for the SPX from Bloomberg of $140.60 leave a 5.46 forward earnings yield on a 18.7 forward multiple.
  • SPX: 2,589/NA
  • DJI: 23,427/NA
  • Nasdaq: 6,759/NA
  • NDX: 6,224/6,338
  • DJT: 9,978/NA
  • MID: 1,825/NA
  • Russell: 1,500/1,547
  • VALUA: 5,837/NA

Breadth Weakens

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