Near-term Outlook Remains “Neutral/Negative”
All the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ with NYSE volumes declining from the prior session as the NASDAQ’s rose.
The charts did manage to register a few positive technical events. However, the majority remained in near-term downtrends while cumulative breadth remains negative. The McClellan 1-day OB/OS Oscillators remained somewhat oversold post their projection of a market bounce yesterday morning.
However, the balance of the data still leaves a lot to be desired. So, the question now is, “Is yesterday’s advance merely a rally to resistance for the indexes that fail, or is it the beginning of a recovery?” From our perspective, the jury is still out. As such, we are maintaining our current “neutral/negative” macro-outlook for equities at this point in time.
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as all closed at or near their intraday highs.
- On the plus side, SPX did close back above its 50 DMA, but remains in a near term downtrend.
- The COMPQX closed above resistance and downtrend line and is now neutral while the MID gave a bullish stochastic crossover signal.
- Nonetheless, the trends are little changed with the DJI, COMPQX and NDX neutral while the remainder are still in near-term negative trends.
- Regarding breadth, while yesterday’s internals were quite positive, they were unable to alter the current downtrends for the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
- The NASDAQ’s A/D did, however, close back above its 200 DMA.
The data finds all the McClellan 1-Day OB/OS are still somewhat oversold in spite of yesterday’s significant gains and may offer a bit more upside push (All Exchange: -62.29 NYSE: -68.12 NASDAQ: -56.45).
- However, the psychology data remains problematic. The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders remains bearish and unchanged at 1.2 as they remain leveraged long.
- This week’s contrarian AAII bear/bull ratio (24.5/41.67) remained in mildly bearish territory while the Investors Intelligence Bear/Bull Ratio (contrary indicator) continued to suggest an excess of bullish expectations on the part of investment advisors at a bearish 15.3/61.2. The lack of fear generated by Monday’s slide implies too much bullish optimism remains present, in our opinion.
- The Open Insider Buy/Sell Ratio remains a neutral 30.4 and still shows a lack of appetite for insiders to buy their own stock.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg ticking up to $199.68 for the SPX. So, the SPX forward multiple dropping to 21.7 with the “rule of 20” finding fair value at approximately18.8.
- The SPX forward earnings yield is 4.61%.
- The 10-year Treasury yield closed at 1.21%. We consider support to be 1.13% with resistance at 1.3%.
In conclusion, yesterday’s oversold bounce was quite a relief. However, there was not, as yet, enough of a shift in chart trends, market breadth and data to alter our near-term “neutral/negative” equity outlook until we have a greater sense that we are witnessing something better than rallies to resistance that may fail.
SPX: 4,234/4,341 DJI: 33,595/34,460 COMPQX: 14,169/14,5912 NDX: 14,485/14,876
DJT: 14,247/14,905 MID: 2,572/2,665 RTY: 2,120/2,225 VALUA: 8,953/9,396