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Breadth Weakens Further

By Guy S. Ortmann, CMTStock MarketsDec 07, 2017 09:59AM ET
Breadth Weakens Further
By Guy S. Ortmann, CMT   |  Dec 07, 2017 09:59AM ET
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Data Remains Mostly Neutral


The indexes closed mixed yesterday with negative internals on the NYSE and NASDAQ as volumes declined from the prior session on both exchanges. No support or trend lines were violated on the charts but two more caution signals were generated. The data remains mostly neutral with an improvement in one of the previously negative signals. Overall market breadth continued to decline with market valuation remaining near historic highs. Nonetheless, we remain of the opinion that the individual index trends should be respected on their own accord until proven otherwise.

  • On the charts, the indexes closed mixed with the SPX (page 2), COMPQX (page 3) and NDX (page 3) closing higher on the day as the rest declined. The COMPQX managed to hold onto support and its near term uptrend line discussed in yesterday’s note. However, market breadth continued to erode with negative internals that pushed the All Exchange cumulative advance/decline line into a negative trend and below its 50 DMA. The NASDAQ cumulative A/D is in the same state as the All Exchange while the NYSE A/D is neutral and above its 50 DMA. One saving grace may be the rather light trading volume in yesterday’s session. “Bearish stochastic crossovers” were generated on the DJI (page 2) and DJT (page 4). However, the COMPQX and NDX stochastic levels are now in oversold territory. The near term trends for the NDX and RTY (page5) are neutral with the rest still in uptrends in spite of recent weakness.
  • The data remains largely neutral including all of the McClellan OB/OS Oscillators (All Exchange:-33.23/+1.21 NYSE:-20.84/+15.02 NASDAQ:-47.21/-9.7). The Equity (0.67) and Total (0.81) Put/Call Ratios are neutral as is the Open Insider Buy/Sell Ratio (28.5). The prior very bearish OEX Put/Call Ratio reading noted yesterday has turned mildly bullish to 0.97 as the pros have traded their puts into calls.
  • In conclusion, it’s too early to suggest the recent market weakness has been completed as breadth continues to atrophy. As well, forward valuation of the SPX remains near historic highs. Nonetheless, our discipline suggests the best course of action remains that of respecting the near term trends of the various indexes for their own current state 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 Further

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