Charts And Breadth Improve
All the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as NYSE volumes dipped and NASDAQ volumes rose from the prior sessions.
The charts saw a number of positive technical developments while market breadth finally saw some improvement from its prior state of deterioration.
Meanwhile, the McClellan 1-day OB/OS Oscillators implied the recent rally was now neutral as is most of the remaining data, while investor psychology tempered a bit with the new investor sentiment surveys showing a dip in bulls and rise in bears from their previous reading. This suggests an easing of overly optimistic expectations on their part.
As such, while we may see some retracement of recent gains, the improvement on the charts, market breadth, and data suggest we alter our near-term macro-outlook for equities to “neutral/positive” from “neutral.”
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ.
- Positive technical events were registered as the DJI, COMPQX, NDX, and RTY closed above resistance with the COMPQX and NDX make new closing highs.
- The VALUA closed above its downtrend line as it and the MID gave bullish stochastic crossover signals.
- So, we now find the SPX, DJI, COMPQX, NDX and DJT in uptrends with the RTY and VALUA neutral. The MID remains in a downtrend but its bullish crossover suggests that may change shortly.
- Importantly, the last few sessions were strong enough to shift the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ back to neutral from negative. However, they remain below their 50 DMAs.
The data is mostly neutral.
- The McClellan 1-Day OB/OS oscillators that suggested the recent rally have moved back to neutral from oversold (All Exchange: -3.93 NYSE: -16.09 NASDAQ: +5.67).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders remains neutral at 0.66.
- The Open Insider Buy/Sell Ratio lifted to 46.0 and remains neutral as well as insiders stepped up their buying activity.
- This week’s contrarian AAII bear/bull ratio (32.77/35.43) and Investors Intelligence Bear/Bull Ratio at 18.5/51.1 (contrary indicator) both saw a rise in bears and dip in bulls and remain neutral and negative respectfully as their enthusiasm waned.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $205.98 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.6%.
- The 10-year Treasury yield lifted slightly to 1.26%. We view resistance as 1.4% with support at 1.23%. We reiterate the recent shift of the 10-year yield into a higher trading range could cause some issues for the markets.
In conclusion, we are of the opinion that the improvement on the charts combined with that if market breadth and generally neutral data warranty a change in our near-term macro-outlook for equities to “neutral/positive” from “neutral.”
SPX: 4,419/NA DJI: 35,000/35,495 COMPQX: 14,628/NA NDX: 15,044/NA
DJT: 14,518/14,675 MID: 2,657/2,7203 RTY: 2,140/2,265 VALUA: 9,273/9,520