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Charts And Breadth Improve

By Guy S. Ortmann, CMTStock MarketsOct 17, 2018 10:43AM ET
Charts And Breadth Improve
By Guy S. Ortmann, CMT   |  Oct 17, 2018 10:43AM ET
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Data Remains Encouraging

All of the indexes closed notably higher Tuesday with positive internals on the NSYE and NASDAQ as volumes rose from those of the prior session on both exchanges. Multiple improvements were seen on the charts as all but one closed above their respective short term resistance levels along with some other positive signals discussed below. The data, although not as encouraging as yesterday morning, does remain generally positive, in our opinion. As such, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

  • On the charts, all of the indexes closed higher yesterday with positive internals on higher volume. Multiple positive technical events were generated on the charts. Virtually every index closed above near term resistance with the one exception of the RTY (page 5) whose resistance level remains well above current levels. Both the NDX (page 3) and VALUA (page 5) also closed above their short term downtrend lines, turning their trends to positive from negative. The rest of the indexes trends turned from negative to neutral. Also of note is all of the indexes followed in the footsteps of the NDX flashing a “bullish stochastic crossover” signal on Monday’s close. They are nowhere near overbought conditions. As well, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turned neutral from negative as breadth has improved.
  • The data remains rather encouraging, in our opinion. While the McClellan 1 day OB/OS Oscillators are now neutral as a result of yesterday’s surge, the 21-day readings remain oversold (All Exchange:-15.5/-58.34 NYSE:-122.68/-55.86 NASDAQ:-18.05/-61.25). The Total Put/Call Ratio (contrary indicator) finds the crowd weighted in puts at 1.03 while the OEX Put/Call Ratio at 0.6 now finds the pros long calls and expecting strength. Insiders continue to be active buyers of depressed prices with a bullish 117.5 Open Insider Buy/sell Ratio. Also, we continue to find valuation somewhat below implied fair value with the forward 12 month earnings estimates for the SPX via Bloomberg at $172.33 leaving the forward 12-month p/e for the SPX at 16.3 versus the “rule of 20” implied fair value of a 16.8 multiple. The “earnings yield” stands at 6.13%.
  • In conclusion, the improvement in the charts, market breadth and somewhat positive data suggest we maintain our near term “neutral/positive” outlook for the major equity indexes as they imply some further upside remains to be achieved.
  • SPX: 2,767/2,828
  • DJI: 25,307/25,860
  • NASDAQ: 7,497/7,718
  • NDX: 7,125/7,398
  • DJT: 10,587/10,997
  • MID: 1,879/1,957
  • Russell: 1,540/1,640
  • VALUA: 6,108/6,331

Charts And Breadth Improve

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