Index Charts & Market Breadth Improve
All the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the prior session. The charts saw multiple positive technical events generated while the market’s cumulative breadth improved as well. The data now finds the 1-day McClellan OB/OS Oscillators back in neutral territory post their prescient oversold conditions that implied the recent bounce. They are not negative, but they suggest upside progress may slow via these indicators. The rest of the data remains mixed. So, given the notable improvement on the charts and market breadth, we feel it appropriate to alter our “neutral/negative” macro-outlook for equities up to “neutral”.
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as trading volumes declined from the previous session.
- Chart improvements were seen on the SPX, (page 2), DJI (page 2), COMPQX (page 3), MID (page 4) and VALUA (page 5) as all closed above resistance.
- As well, the SPX closed above its downtrend line as did the MID and VALUA.
- The NDX (page 3) closed back above its uptrend line and is now in an uptrend. It is the only index in that condition currently.
- The SPX, DJI, COMPQX, MID and VAUA are back to neutral with the DJT (page 4) and RTY (page 5) still in near-term downtrends.
- Market breadth also improved with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turning neutral form negative.
- No stochastic signals were generated.
The data finds all the McClellan 1-Day OB/OS that foreshadowed the recent market strength have returned to neutral territory, suggesting further progress may come at a slower pace (All Exchange: -15.13 NYSE: -24.8 NASDAQ: -7.23).
- Yet, the psychology data remains a concern. The Rydex Ratio (contrarian indicator page 8) 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 page 9) 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 still implies too much bullish optimism remains present, in our opinion.
- The Open Insider Buy/Sell Ratio remains unchanged at 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 $200.08 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.8.
- The SPX forward earnings yield is 4.59%.
- The 10-year Treasury yield closed at 1.28%and near 1.3% resistance. We view support to be 1.13%. We are monitoring the yield for a possible violation of said resistance.
In conclusion, the notable improvements on the charts and market breadth are, by our work, sufficient to raise our near-term macro-outlook for equities from “neutral/negative” to “neutral” although further progress may occur at a slower pace.
SPX: 4,234/4,369
DJI: 34,188/34,844
COMPQX: 14,269/14,632
NDX: 14,485/14,876
DJT: 14,247/14,905
MID: 2,628/2,691
RTY: 2,120/2,225
VALUA: 9,145/9,550