Most Short-Term Chart Trends Neutral

Data Remains Mixed (Neutral & Positive)

Most of the major equity indexes closed lower yesterday with two exceptions positing minor gains. Internals were negative on the NYSE and NASDAQ as trading volumes were flat versus the prior session on the NYSE while the NASDAQ’s rose. Two charts violated their short term uptrend lines. The data remains essentially the same with a mix of positive and neutral indicators. As such, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

On the charts, the indexes closed mostly lower yesterday with negative internals.

• The DJT (page 4) and RTY (page 5) posted minor gains as the rest declined.
• The DJI (page 2) and MID (page 4) closed below their short term uptrend lines, turning said trends to neutral from positive.
• So we now find only the SPX (page 2) still in a short term uptrend with the balance neutral.
• The cumulative advance/decline lines remain positive on the NSYE, NASDAQ and All Exchange.
• High “volume at price” (VAP) levels are overhanging the COMPQX (page 2) and DJT while offering support on the NDX (page 3) and MID.
• The SPX, DJI and VALUA (page 5) are at their high VAP levels offering important resistance. Should they be violated to the upside, we would interpret such action as bullish. It has not yet occurred.

The data is mostly neutral.

• The 1 day McClellan OB/OS Oscillators remain neutral (All Exchange:+21.75 NYSE:+28.04 NASDAQ:+15.48).
• The Open Insider Buy/Sell Ratio (56.7) and the % of SPX stocks above their 50 DMAs (51.3) are neutral as well.
• Psychology remains generally positive with this week’s AAII Bear/Bull Ratio (contrary indicator) seeing an increase in bearish sentiment in the face of the rally to 39.33/23.33. We view this lack of enthusiasm on the part of the crowd as a positive.
• The detrended Rydex Ratio (contrary indicator) at –0.88 also shows the leveraged ETF traders remaining leveraged short as they continue to doubt recent market strength.
• The 12 month forward consensus earnings estimate from Bloomberg for the SPX is $170.98, leaving the forward p/e at a 16.8 multiple while the “rule of twenty” finds fair value at 17.9 suggesting the SPX is slightly undervalued. This is based on the assumption that said estimates will hold. The shift in valuation has largely been due to the notable drop in the 10 Year Treasury yield to 2.13%. The earnings yield stands at 5.943%.

In conclusion, given the state of the charts, data and valuation, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

• SPX: 2,729/2,827
• DJI: 24,681/25,647
• Nasdaq: 7,611/7,837
• NDX: 7,280/7,510
• DJT: 9,820/10,286
• MID: 1,823/1,883
• Russell: 1,445/1,506
• VALUA: 5,797/6,013