Data Remains Neutral And Continues To Suggest Moderation Of Strength
The bulk of the major equity indexes closed higher Wednesday except for the DJT posting a loss. Internals were positive on the NYSE and NASDAQ as trading volumes declined from the prior session. Only one technical event was registered on the charts versus the abundance seen from Tuesday’s trading.
The data remains generally neutral and, in our opinion, continues to suggest a moderation of the market strength experienced from when notable oversold conditions existed a few days ago. There was some improvement in cumulative market breadth, however. As such, the charts and data suggest we maintain our near-term “neutral/positive” macro-outlook for equities.
On the charts, all the major equity indexes closed higher yesterday with the exception of the DJT positing a loss while market internals were positive on the NYSE and NASDAQ. Several closed near their highs of the day.
- Only one technical event was registered with the VALUA closing back above its 50 DMA. The prior session saw multiple positive technical improvements.
- Regarding near-term trends, all the indexes are in neutral short-term trends with all back above their 50 DMAs.
- Market breadth improved on the NYSE’s cumulative advance/decline line as it turned positive from neutral. The All Exchange and NASDAQ A/Ds remain neutral.
- The DJI stochastic is now overbought with the rest neutral.
Looking at the data, the McClellan 1-Day OB/OS Oscillators remain in neutral territory (All Exchange: +18.17 NYSE: +24.09 NASDAQ: +14.52). In our opinion, now that the prior deeply oversold OB/OS levels have been dispelled, they suggest some pause in the momentum of the recent market advances.
- The % of SPX issues trading above their 50 DMAs lifted to 63% and remains neutral.
- The Open Insider Buy/Sell Ratio dipped to a neutral 62.2 as insiders again eased up on their buying activity from when the markets were oversold.
- However, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped further to a neutral 0.85. The shedding of their leveraged long exposure going into the correction is encouraging, in our view, as such activity on their part is common after the bulk of a correction has already been expressed.
- This week’s contrarian AAII Bear/Bull Ratio rose to 1.06 as the crowd became more nervous, remaining neutral. The Investors Intelligence Bear/Bull Ratio (24.7/49.4) (contrary indicator) is still neutral although the number of bullish advisors declined as bears increased.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $215.94 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately 18.5.
- The SPX forward earnings yield is 4.59%.
- The 10-year Treasury yield rose to 1.51. We view support at 1.35% and resistance at 1.53%.
In conclusion, while the charts have seen notable improvement over the past few sessions, the data now suggests some pause or slowing of bullish momentum over the near term. Thus, we reiterate our near-term “neutral/positive” macro-outlook for equities.
SPX: 4,609/4,715 DJI: 35,233/35,923 COMPQX: 15,268/15,812 NDX: 15,888/16,417
DJT: 15,480/16,540 MID: 2,741/2,845 RTY: 2,200/2,300 VALUA: 9,553/9,930