NASDAQ Cumulative A/D Turns Positive
The major equity indexes closed mostly higher yesterday, with two exceptions, with positive internals on the NYSE and NASDAQ as trading volumes rose on both exchanges from the prior session. Several new closing highs were achieved while two of the indexes saw shifts in trend. All but one of the indexes are in near-term uptrends with market breadth continuing to improve. Regarding data, the McClellan 1-day OB/OS Oscillators are still in neutral territory. However, the psychology data continues to suggest an excess of bullish sentiment on the part of investors that, in our opinion, has the potential of casting a cloud over the markets at some point. Nonetheless, the current chart trends combined with improving cumulative breadth and neutral OB/OS levels continue to suggest we maintain our near-term “neutral/positive” macro-outlook for equities.
On the charts, the bulk of the major equity indexes closed higher yesterday except for the DJI and DJT posting losses. All occurred with positive internals and higher trading volumes on the NYSE and NASDAQ.
- New closing highs were registered on the SPX (page2), COMPQX (page 3), MID (page 4) and VALUA (page 5).
- The RTY (page 5) finally managed to see its near-term trend turn positive while the DJI (page 2) closed marginally below its uptrend line and, as such, is now technically neutral.
- So, all are in uptrends except for the DJI.
- Cumulative market breadth improved with the NASDAQ cumulative A/D joining the All Exchange and NYSE in positive near-term uptrends.
- No stochastic signals of import were generated.
On the data, the McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: +38.4 NYSE: +29.67 NASDAQ: +45.67).
- Sentiment indicators, however, remain cautionary. The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders is still in very bearish territory, rising to 1.58.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) stayed bearish and unchanged at 16.8/63.4.
- The AAII, however, turned more bearish at 21.83/55.47.
- Bullish expectations have become excessive, in our opinion, that may cause an issue for the markets going forward.
- The Open Insider Buy/Sell Ratio is mildly bearish at 24.3.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $183.97. This leaves the SPX forward multiple at 22.8 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 4.4%.
- The 10-year Treasury yield closed at 1.57% and remains near what we see as support at 1.55%. We view 1.63% as resistance.
In conclusion, the chart trends with the OB/OS levels and improving market breadth suggest we maintain our near-term “neutral/positive” macro-outlook for equities intact, despite sentiment and valuation concerns.
SPX: 4,080/4,180
DJI: 33,545/34,133
COMPQX: 13,790/NA
NDX: 13,755/13,953
DJT: 14,920/NA
RTY: 2,250/2,300
VALUA: 9,293/NA