Sentiment Data Sees Slight Improvement But Still Cautionary
The major equity indexes closed mixed Monday with positive internals in the NYSE and NASDAQ, leaving all but two of the charts in near-term neutral trends. The McClellan OB/OS oscillators remain neutral as well.
Market breadth showed some slight improvement as did the bulk on the sentiment indicators. However, sentiment levels remain cautionary, in our opinion. So, while the futures indicate a weak open this morning, at this stage the charts and data continue to suggest we keep our near-term “neutral/positive” macro-outlook for equities in place.
On the charts, all the major equity indexes closed higher yesterday except for the COMPQX and NDX posting losses.
- Internals were positive on the NYSE and NASDAQ. The one technical event of import was the DJT managing to post another new closing high.
- Regarding trends, the DJT and VALUA remain in near-term uptrends while the rest are neutral.
- Cumulative market breadth saw a slight improvement with the NYSE A/D turning positive as the All Exchange and NASDAQ cumulative A/Ds remain neutral.
- The VALUA yielded a bearish stochastic crossover signal.
On the data, the McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: +4.47 NYSE: +9.7 NASDAQ: -0.16).
- Sentiment indicators did see some slight improvement but remain at cautionary levels.
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders is still in bearish territory, dropping to 1.43 from 1.56.
- This week’s Investors Intelligence Bear/Bull Ratio (contrarian indicator) saw a drop in bullish sentiment at 16.5/59.2 as did the AAII bear/bull ratio at 23.6/49.7. However, both of those sentiment contrarian indicators remain in bearish territory
- The Open Insider Buy/Sell Ratio remains neutral, lifting to 28.4 as insiders slightly increased their buying activity once more.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $187.59. This leaves the SPX forward multiple at 22.4 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 4.5%.
- The 10-year Treasury yield closed at 1.61% and near 1.63% resistance. We view 1.55% as support.
In conclusion, while sentiment and market breadth improved slightly, their shift was not sufficient to alter our near-term “neutral/positive” macro-outlook for equities. Today’s challenge will be whether or not the market will be able to recover from what appears to be a weak open.
- SPX: 4,170/NA DJI: 33,700/34,133 COMPQX: 13,900/NA
- NDX: 13,755/13,990 DJT: 14,920/NA MID: 2,701/2,770
- RTY: 2,250/2,300 VALUA: 9,293/NA