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Charts Remain Positive As Data Deteriorates

By Guy S. Ortmann, CMTMarket OverviewOct 13, 2020 09:18AM ET
Charts Remain Positive As Data Deteriorates
By Guy S. Ortmann, CMT   |  Oct 13, 2020 09:18AM ET
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Near-Term Outlook Remains Neutral/Positive

All the major equity indexes closed higher Monday with positive internals on the NYSE and NASDAQ as trading volumes declined on the NYSE and rose on the NASDAQ from the prior session. The charts saw more bullish technical events generated with resistance levels being violated while remaining in near-term uptrends as the data has turned a bit more cautionary. As well, valuation is back near peak levels seen prior to the inclusion of Q3 2021 estimates. As such, we believe we may be entering a period where there will be a more delicate balancing act for the markets in general. The data and valuation are back at cautionary levels while the charts continue their northward trek and have yet to generate any sell signals. For now, the charts are in control, causing us to maintain our near term “neutral/positive” outlook for the equity markets.

On the charts, all the indexes closed higher Friday with positive internals on the NYSE and NASDAQ.

  • All the charts remain in near-term uptrends and have yet to generate sell signals.
  • Violations of resistance occurred on the SPX (page 2), DJI (page 2), COMPQX (page 3) and NDX (page 3).
  • The DJT (page 4) made another new closing high. All the charts remain in near-term uptrends and above their 50 DMAs and have yet to generate any sell signals, by our work.
  • The cumulative advance/decline lines for the All Exchange NYSE and NASDAQ remain positive and above their 560 DMAs as well.
  • On the other hand, the stochastic levels are well into overbought territory but have not generated bearish crossover signals at this point.

The data continues to increase its cautionary tone.

  • The 1-day McClellan OB/OS Oscillators increased their overbought conditions (All Exchange: +90.82 NYSE: +86.01 NASDAQ: +97.37). At some point, they will enter oversold territory as is the nature of the markets. However, there is no specific timing in that regard.
  • The Open Insider Buy/Sell Ratio (page 9) is neutral and unchanged at 30.5 as insiders increased their selling over the past week.
  • In contrast, the detrended Rydex Ratio (contrary indicator page 8) shows the leveraged ETF traders upped their leveraged long exposure to a bearish +1.05.
  • This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) was little changed at a bearish 23.2/+54.6 while the AAII Bear/Bull Ratio (contrary indicator) is a bullish 42.68/28.62.
  • The counterintuitive % of SPX issues trading above their 50 DMAs is neutral at 76.0%.
  • The valuation gap remains extended with the SPX forward multiple lifting to 22.7 with consensus forward 12-month earnings estimates from Bloomberg of $155.70 while the “rule of 20” finds fair value at 19.2. We reiterate, said valuation extension has been present for the past several months.
  • The SPX forward earnings yield is 4.41% with the 10-year Treasury yield at 0.78%.

In conclusion, the charts are positive while the data has darkened, leaving the scales evenly balanced in that regard. However, the charts and breadth have yet to show signs of potential failures.

SPX: 3,419/3,586 DJI: 28,216/29,148 COMPQX: 11,367/12,065

NDX: 11,563/12,1962 DJT: 11,403/NA MID: 1,908/2,007

RTY: HVS1,600/1,650 VALUA: 6,4325/6,747

Charts Remain Positive As Data Deteriorates

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Charts Remain Positive As Data Deteriorates

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