Data Remains Mostly Neutral
The major equity indexes closed mostly lower Tuesday except for the Nasdaq 100, which posted a gain. Internals were negative on the NYSE, while the NASDAQ Composite saw negative breadth but positive up/down volume. Yet, the down session had no impact of the current near-term chart trends that remain a mix of positive and neutral projections, in our opinion. The data continues to send a generally neutral message as well. As a result, with the indexes essentially at levels of one month ago, we have yet to see enough evidence presented to warrant a change in our current near-term “neutral” macro-outlook of equities.
On the charts, all the major equity indexes closed lower yesterday except for the NDX, which posted a gain.
- All closed at or near their intraday lows, with negative NYSE internals, while the NASDAQ’s were mixed. Trading volumes rose from the rather dull prior session.
- At the close, the charts found no changes of trend or violations of support, leaving the SPX, COMPQX and NDX in near-term uptrends with the rest neutral.
- Cumulative breadth is neutral for the All Exchange and NASDAQ and remains positive on the NYSE.
- No stochastic signals of import were generated as they remain in neutral territory.
On the data, the McClellan 1-Day OB/OS Oscillators remain neutral (All Exchange: -2.14 NYSE: -9.3 NASDAQ: +2.91).
- The Rydex Ratio measuring the action of the leveraged ETF was unchanged at a neutral 0.7.
- This week’s AAII bear/bull ratio stayed neutral at 25.47/39.27.However, the Investors Intelligence Bear/Bull Ratio saw a notable drop in bullish sentiment. The II Bear/Bull came in at 17.2/54.5. The 54.5% bulls dropped from the prior week’s level of 66.1.%.
- In our opinion, the recent deleveraging of leveraged long exposure on the Rydex as well as the drop on II % of bulls is an improvement from what we had previously viewed as an excess of bullish expectations on the part of investors.
- The Open Insider Buy/Sell Ratio lifted to 29.1. While it is an improvement, it still lacks what we would consider to be important signs of increasing appetite for buying their own shares.
- Valuation continues to appear extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $189.76, leaving the SPX forward multiple at 22.1 with the “rule of 20” finding fair value at 18.4. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield is 4.53%.
- The 10-year Treasury yield dropped to 1.56% and now suggests support at 1.55% with resistance at 1.63%. We continue to believe the moves in the 10-year yield may well have the greatest influence over the near-term action on the equity indexes.
In conclusion, both the charts and data, in our opinion, continue to suggest our near-term “neutral” macro-outlook for equities remains appropriate until enough evidence appears to warrant a change.
SPX: 4,153/4,225 DJI: 34,050/34,400 COMPQX: 13,433/13,750
NDX: 13,406/13,755
RTY: 2,180/2,240 VALUA: 9,385/9,543