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Trends Turn Positive

By Guy S. Ortmann, CMTStock MarketsJul 30, 2021 09:19AM ET
Trends Turn Positive
By Guy S. Ortmann, CMT   |  Jul 30, 2021 09:19AM ET
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McClellan OB/OS Oscillators Remain Neutral

All the major equity indexes closed higher Thursday with positive internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the prior session. At the close, two of the indexes managed to shift their near-term trends to positive from neutral. As such, only one of the index charts remains in a near-term downtrend at this point. Cumulative breadth improved on the NYSE while the data finds the McClellan OB/OS Oscillators staying in neural territory as the recent improvement in investor psychology remains largely intact. As such, with forward 12-month consensus earnings for the SPX continuing to rise, we remain “neutral/positive” in our near-term macro-outlook for equities, despite the weak futures this morning.

On the charts, all the major equity indexes posted gains yesterday with positive market internals on the NYSE and NASDAQ.

  • Of note, the MID (page 4) and VALUA (page 5) both closed above resistance and their 50 DMAs, thus turning their near-term trends to positive from neutral. They join the COMPQX (page 3) and NDX (page 3) in that regard.
  • The SPX (page 2), DJI (page 2) and Russell 2000 (page 5) remain neutral with only the DJT (page 4) still in a near-term downtrend.
  • Market breadth saw some improvement with the cumulative advance/decline line for the NYSE turning positive and above its 50 DMA.
  • The All Exchange and NASDAQ A/Ds remain neutral. No stochastic signals were generated.

The data still finds all the McClellan 1-Day OB/OS oscillators in neutral territory despite the gains (All Exchange: +7.66 NYSE: +16.3 NASDAQ: +1.21).

  • The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders remains bearish but dipping to 1.26.
  • This week’s contrarian AAII bear/bull ratio (27.3/35.67) and Investors Intelligence Bear/Bull Ratio at 16.7/53.1(contrary indicator page 9) improved, both seeing a drop in bulls and rise in in bears as the crowd became more fearful.
  • The Open Insider Buy/Sell Ratio at 49.3, while dipping slightly, still finds insiders more willing to participate on the buy side which is a notable improvement, in our opinion, versus their absence over the past several weeks.
  • Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $203.33 for the SPX. As such, the SPX forward multiple is 21.7 with the “rule of 20” finding fair value at approximately18.7.
  • The SPX forward earnings yield is 4.6%.
  • The 10-year Treasury yield closed at 1.27. We view support to be 1.13% and resistance a6t 1.3%.

In conclusion, despite the negative futures this morning, we believe the charts and data continue to suggest we maintain our current “neutral/positive” macro-outlook for equities.

SPX: 4,350/NA

DJI: 34,580/NA

COMPQX: 14,544/NA

NDX: 14,800/NA

DJT: 14,100/14,905

MID: 2,667/2,729

RTY: 2,120/2,225

VALUA: 9,415/9,704

Trends Turn Positive

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Trends Turn Positive

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