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Indexes Decline But Near-Term Trends Hold

By Guy S. Ortmann, CMTStock MarketsJul 14, 2021 09:18AM ET
Indexes Decline But Near-Term Trends Hold
By Guy S. Ortmann, CMT   |  Jul 14, 2021 09:18AM ET
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McClellan 1-Day OB/OS Oscillators Back In Oversold Territory

All the major equity indexes closed lower Tuesday and at, or near, their intraday lows. Internals were negative on the NYSE and NASDAQ as trading volumes rose from the prior session. However, while some 50 DMAs were violated to the downside, none of the current near-term index trends were altered on the charts, leaving them a mix of bullish, bearish and neutral.

Yet, there was some deterioration of market breadth that suggests selectivity is likely to continue.

The data finds the McClellan 1-day OB/OS Oscillators slipping back into oversold territory while insiders did a bit of buying on the session’s weakness. Only the psychology data remains cautionary at this point.

As such, despite yesterday’s declines, we did not see a sufficient shift in the weight of the evidence to alter our near-term “neutral/positive” macro-outlook for equities. We would, however, reiterate the high degree of selectivity involved in upside participation.

On the charts, all the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes rose.

  • Despite all closing at or near their intraday lows, no violations of the current trends appeared. The SPX, DJI, COMPQX and NDX remain in uptrends with the MID, RTY, VALUA neutral and the DJT bearish.
  • However, the MID, RTY and VALUA did close below their 50 DMAs.
  • Market breadth suffered some deterioration with the All Exchange and NASDAQ cumulative A/Ds turning negative from neutral with the NYSE A/D unchanged at neutral. The NASDAQ A/D also closed below its 50 DMA.
  • No stochastic signals were generated.

The data finds all the McClellan 1-Day OB/OS slipping back into oversold territory with varying degrees (All Exchange: -55.1 NYSE: -50.84 NASDAQ: -58.55).

  • The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders saw an uptick and remains bearish at 1.46 as they remain leveraged long.
  • This week’s contrarian AAII bear/bull ratio (23.33/43.07) moved back into mildly bearish territory while the Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a decline in bears and a lift in bulls, remaining bearish at 15.5/60.8. It continues to suggest an excess of bullish expectations, in our opinion.
  • The Open Insider Buy/Sell Ratio rose to 30.8 as insiders did some buying and remains neutral.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting slightly to $199.11 for the SPX. As a result, the SPX forward multiple is 21.9 with the “rule of 20” finding fair value at approximately18.6.
  • The SPX forward earnings yield is 4.56%.
  • The 10-year Treasury yield closed higher at 1.42 and near resistance. We view support as 1.2% and resistance at 1.44%. The 10-year yield remains in a downtrend from its March peak that we view as a positive for equities regarding the valuation gap.

In conclusion, yesterday’s softness, while weakening breadth, left the chart trends unchanged and the data somewhat benign. As such, we are maintaining our near-term “neutral/positive” macro-outlook for equities.

SPX: 4,295/NA DJI: 34,570/NA COMPQX: 14,356/NA

NDX: 14,485/NA DJT: 14,247/14,905 MID: 2,668/2,716

RTY: 2,180/2,225 VALUA: 9,461/9,672

Indexes Decline But Near-Term Trends Hold

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Indexes Decline But Near-Term Trends Hold

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