Market Breadth Moderates
Opinion
The majority of the indexes closed lower yesterday with negative internals. All closed near their intraday lows with the RTY closing below near term support. Overall market breadth turned neutral. The data remains largely neutral with the exception of psychology that remains a concern, in our view. As such, and in spite of the negative break on the RTY, we are inclined to keep our near term market outlook at “neural” although the overall picture is starting to take on a somewhat darker tone. Continued extended forward valuation of the SPX near historic highs keeps the intermediate term view “neutral” as well.
- On the charts, the only index to close higher yesterday was the DJT (page 3). The rest closed lower with broadly negative internals. The most significant technical event was the RTY (page 4) closing below near term support, turning its short term trend negative. We would also note the DJI (page 2) closed on support as well as its long term uptrend line. Any further weakness in that index could prove to be technically negative. We would also note the moderation in the advance/decline lines for the All Exchange and NYSE turning neutral from their prior positive trends. While not an outright negative, it does cast a shadow over the prospects for further near term market progress. The VIX (page 9) is at the midpoint of its recent trading range.
- The data remains mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange: -18.04/+28.84 NYSE:-33.11/+39.97 NASDAQ:-47.76/-1.56) as well as the Equity Put/Call Ratio at 0.56. However the OEX Put/Call Ratio (smart money) still finds the pros long calls and expecting near term strength at 0.52.
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- The psychology data remains a sore point for us. The crowd remains overly bullish as seen by the most recent Investors Intelligence Bear/Bull Ratio (contrary indicator) that finds investment advisors actually increasing their bullish opinions from their already extended levels to 17.3/60.6. It implies a dangerously large degree of complacency on their part. As well, the Rydex Ratio (contrary indicator) finds the leveraged ETF traders back at historic highs of leveraged long exposure at 69.9. In contrast, although having barely slipped into neutral territory, the Gambill Insider Buy/Sell Ratio still finds insiders as largely active sellers at current levels at 8.4.
- In conclusion, we need just a bit more evidence to alter our near term “neutral” outlook for the major equity indexes, although the scales appear to possibly be tilting in that direction.
- Forward 12-month earnings estimates for the SPX from IBES of $132.12 leave a 5.81 forward earnings yield on a 17.2 forward multiple, a 12-year high.
- SPX: 2,237/2.277
- DJI: 19,735/19,975
- NASDAQ: 5,432/NA
- DJT: 9,000/9,317
- MID: 1,659/1,690
- RTY: 1,313/1,388
- VALUA: 5,262/5,388