Sentiment Data Somewhat Cautionary
The majority of the major equity indexes closed lower yesterday with the one exception of the RTY managing to advance. Internals were negative on the NYSE and NASDAQ as volumes declined from the prior session. After a very weak opening, prices managed to erase the lion’s share of the day’s weakness. As a result, the charts saw no technical events of import generated while the data is starting to become more mixed, particularly with the sentiment data casting some shadows. As such, we are maintaining our near term “neutral” outlook for the major equity indexes.
On the charts, all but the RTY (page 5) closed lower yesterday with negative internals on the NYSE and NASDAQ as volumes declined.
- Importantly, all managed to close well above their intraday lows that were sizable.
- No support/resistance levels were violated as the near term trends remained intact with the DJI (page 2), NDX (page 3) and VALUA (page 5) neutral and the rest positive.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive.
The data remains largely neutral with the exception of sentiment.
- All of the 1 day McClellan OB/OS Oscillators are neutral (All Exchange:-6.91 NYSE:-18.06 NASDAQ:+3.51).
- The % of SPX stacks above their 50 DMAs remains neutral as well at 67.9.
- While the Open Insider Buy/Sell Ratio remains neutral at 30.1, it does show a notable decline in buying interest on the part of insiders.
- Sentiment is a bit more cautionary as the new AAII Bear/Bull Ratio (contrary indicator) is mildly bearish at 20.67/36.33 as is the Investors Intelligence Bear/Bull Ratio at 18.4/53.4 and detrended Rydex Ratio at 0.78. The crowd is becoming a little too enthusiastic.
- The 12 month forward consensus earnings estimate from Bloomberg for the SPX now stands at $171.74, leaving the forward p/e at a 17.1 multiple while the “rule of twenty” finds fair value at 17.5. As such, the SPX is very close to fair value by this metric. The earnings yield stands at 5.86%.
In conclusion, while the charts have yet to see any notable cautionary signals at this stage, the facts that the SPX is no longer undervalued while some investor sentiment data is starting to show some excess in bullish sentiment, the risk/reward ratio has become more evenly balanced, in our opinion. As a result, we are maintaining our near term “neutral” outlook for the major equity indexes.