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Index Charts See Improvement

By Guy S. Ortmann, CMTStock MarketsApr 26, 2021 10:38AM ET
Index Charts See Improvement
By Guy S. Ortmann, CMT   |  Apr 26, 2021 10:38AM ET
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Cumulative Market Breadth Improves As Well

All the major equity indexes closed higher Friday with positive internals on the NYSE and NASDAQ as overall trading volumes declined from the prior session. All closed at or near their intraday highs. The charts saw several technical improvements including some new closing high as well as reclamations of some near-term uptrends. Cumulative market breadth also improved. The data finds the 1-day McClellan OB/OS Oscillators remaining neutral while investor psychology continues to suggest an excess of bullish sentiment persists. Valuation continues to appear extended but has been in that condition for the past several months. As such, we remain of the opinion that the charts and OB/OS levels remain the dominant factors in near-term market action as we remain near-term “neutral/positive” in our macro-equity outlook.

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

  • Positive technical events came in the form of the DJT (page 4), MID (page 4) and VALUA (page 5) making new all-time closing highs.
  • Also, the SPX (page 2) and DJI (page 2) managed to reclaim their near-term uptrend lines and are back in near-term bullish trends as are the rest of the indexes except for the RTY (page 5) that is neutral.
  • Friday’s positive breadth was sufficient to shift the cumulative advance/decline lines for the All Exchange and NYSE to positive from neutral while the NASDAQ’s turned neutral from negative.
  • No stochastic signals of import were generated.

On the data, the McClellan 1-Day OB/OS oscillators remain neutral despite Friday’s gains (All Exchange: +19.02 NYSE: +18.32 NASDAQ: +20.7).

  • Sentiment indicators remain cautionary. The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders, is still in very bearish territory, dipping slightly to 1.52 as they remain heavily leveraged long.
  • Last week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) turned more bearish at 16.8/63.4 with the AAII a bearish 22.73/53.17.
  • In general, bullish expectations have become excessive, in our opinion, with the sentiment data in need of some rebuilding of the proverbial “wall of worry”. New sentiment data will be released tomorrow.
  • The Open Insider Buy/Sell Ratio is mildly bearish at 24.3.
  • Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $183.75. This leaves the SPX forward multiple at 22.7 while the “rule of 20” finds 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 stands at 4.44%.
  • The 10-year Treasury yield closed at 1.57% and remains near what we see as support at 1.55%. We view 1.63% as resistance.

In conclusion, the chart trends with the OB/OS levels and improving market breadth suggest we maintain our near-term “neutral/positive” macro-outlook for equities intact, despite sentiment and valuation concerns.

SPX: 4,080/4,180

DJI: 33,545/34,133

COMPQX: 13,668/14,000

NDX: 13,610/13,953

DJT: 14,752/NA

MID: 2,676/NA

RTY: 2,175/2,225

VALUA: 9,293/NA

Index Charts See Improvement

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Index Charts See Improvement

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