Some intermediate Term Uptrend Lines Violated
All of the major equity indexes closed notably lower yesterday with broadly negative internals on heavier overall trading volumes. The charts saw further damage as all but one broke below their near term support levels while others also violated their intermediate term uptrend lines. The data is a bit mixed as most remain neutral while the McClellan 1-day OB/OS Oscillators are oversold once again. So in spite of the futures indicating a positive open, the message from the charts and data continue to instruct us to maintain our near term “neutral/negative” outlook for the major equity indexes.
On the charts, all of the indexes closed lower yesterday with negative internals on heavy trading volumes. In fact, the NYSE saw a 20:1 down versus up trading volume.
All of the indexes closed below their near term support levels with the one exception of the NDX (page 3). However, the NDX did close back below its 50 DMA.
Of equal importance is the DJT (page 4), MID (page 4) and VALUA (page 5) closed below their intermediate term uptrend lines that had been in effect since January.
We would restate our concern that the broader indexes have been trading poorly while the narrower large cap indexes had continued to advance until lately. We regard that dynamic as unhealthy and worthy of caution.
As such, all but the NDX are in short term downtrends as are the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ.
The high “volume at price” (VAP) levels are viewed as resistant on all but the NDX which is neutral. Said high VAPs suggest sizable overhead supply.
The data is mixed.
The 1-day McClellan OB/OS Oscillators have returned to oversold status (All Exchange:-71.89 NYSE:-78.72 NASDAQ:-66.91). Yet we would note readings of -100 and lower are capable of being achieved.
The detrended Rydex Ratio (contrary indicator) remains neutral at -0.28 as is the % of SPX stocks trading above their 50 DMAs at 24.6.
The AAII and Investors Intelligence Bear/Bull Ratios (contrary indicators remain neutral at 34.67/30.0 and 17.9/48.1 respectively.
While the Open Insider Buy/Sell Ratio continues to show an increase in insider buying, it remains neutral at 77.2.
Valuation appears appealing although forward estimates have been seeing a minor but steady decline of late for the SPX. Currently, the 12-month forward consensus earnings estimate from Bloomberg for the SPX is $171.75, leaving the forward p/e at a 16.5 multiple while the “rule of twenty” finds fair value at 18.4.
The 10-Year Treasury yield is 1.58%.
The earnings yield stands at 6.05%.
In conclusion, while the futures indicate a positive open, the discipline of the charts and data suggest we maintain our near term “neutral/negative” outlook for the major equity indexes at this time.
- SPX: 2,823/2,876
- DJI: 25,448/25,905