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Indexes Show More Positive Technicals Amidst Breadth Improvement

By Guy S. Ortmann, CMTStock MarketsDec 08, 2021 09:24AM ET
Indexes Show More Positive Technicals Amidst Breadth Improvement
By Guy S. Ortmann, CMT   |  Dec 08, 2021 09:24AM ET
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Most Data Neutral And Suggests Moderation of Strength

The major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes dipped on the NYSE and rose on the NASDAQ. The strength of the gains impacted the index charts with multiple positive technical events registered while cumulative breadth improved as well.

However, the significant gains moved the 1-day McClellan OB/OS Oscillators to neutral from their prior oversold levels while the rest of the data remains neutral as well. As such, the improvement on the charts and cumulative breadth combined with the generally neutral 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 positive internals on the NYSE and NASDAQ. All but one of the indexes registered multiple positive technical events being registered as follows.

  • The SPX closed above resistance and near-term downtrend line.
  • The DJI closed above resistance and its 50 DMA.
  • The COMPQX closed above its 50 DMA, downtrend line, and resistance while also generating a bullish stochastic crossover signal.
  • The NDX closed above its downtrend line and resistance.
  • The MID closed above resistance and its 50 DMA.
  • The RTY closed above resistance and downtrend line.
  • The VALUA closed above resistance and downtrend line as well.
  • So, as of the close, we find all the indexes are now in near-term neutral trends.
  • Cumulative breadth also improved with the All Exchange and NASDAQ joining the NYSE A/D in neutral trends versus their prior negative slopes.

Looking at the data, the McClellan 1-Day OB/OS Oscillators shifted back to neutral territory (All Exchange: -7.01 NYSE: +6.14 NASDAQ: -15.36). In our opinion, this is not surprising given the depth of their prior oversold conditions that contributed to the recent rally. However, they may suggest a slowing of recent strength at current levels.

  • The % of SPX issues trading above their 50 DMAs lifted to 61% and remains neutral.
  • The Open Insider Buy/Sell Ratio dipped to a neutral 68 as insiders eased up oi their buying activity.
  • However, the detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped slightly to a neutral 0.98. We view this as a positive as they remain somewhat nervous. So, the Insider Buy/Sell-Rydex comparison remains encouraging.
  • 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 $215.87 for the SPX. As such, the SPX forward multiple is 21.7 with the “rule of 20” finding fair value at approximately 18.5.
  • The SPX forward earnings yield is 4.61%.
  • The 10-year Treasury yield rose to 1.48 and above resistance. We now view support at 1.35% and resistance at 1.53%.

In conclusion, the issues we discussed recently that caused us to lift our near-term outlook to “neutral/positive” from “neutral” have come to fruition. We remain near-term “neutral/positive” in our macro-outlook.

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

Indexes Show More Positive Technicals Amidst Breadth Improvement

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Indexes Show More Positive Technicals Amidst Breadth Improvement

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