Market Breadth Weakens As Well
Most of the major equity indexes closed lower Tuesday with negative internals on the NYSE while the NASDAQ’s were mixed as trading volumes rose from the prior session on both exchanges. While two of the indexes made new closing highs, the charts saw several indexes close below their near-term uptrend lines, turning said trends to neutral from positive. As well, one closed below its 50 DMA as another gave a bearish crossover signal. Cumulative market breadth also weakened and is now neutral versus their prior positive trends. Meanwhile, the data is a mix of neutral and cautionary signals. Yet, even with the slight deterioration noted above, it is not quite enough, in our opinion, to alter our current “neutral/positive” macro-outlook for equities.
On the charts, only the COMPQX (page 3) and NDX (page 3) closed higher yesterday to new closing highs as the rest posted losses for the session.
- The SPX (page 2), RTY (page 5) and VALUA (page 5) closed below their near-term uptrend lines and are now in neutral trends while the DJT (page 4) closed below its 50 DMA and the DJI (page 2) gave a bearish stochastic crossover signal.
- As such, only the COMPQX, NDX and DJI remain in near-term uptrends with the rest now neutral.
- Cumulative market breadth also weakened with the advance/decline lines for the All Exchange, NYSE and NA SDAQ all turning neutral from positive with the All Exchange and NASDAQ back below their 50 DMAs.
The data finds the McClellan 1-Day OB/OS Oscillators all in neutral territory (All Exchange: +18.08 NYSE: -1.35 NASDAQ: +31.59).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders dipped slightly to 1.33 and still finds the ETF traders heavily leveraged long and in bearish territory.
- The Open Insider Buy/Sell Ratio is unchanged at 23.1 and remains bearish versus its prior neural level.
- This week’s contrarian AAII Bear/Bull Ratio and Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) both saw an increase in bears and bulls with the AAII remaining neutral (33.8/38.73) and the II bearish at 21.3/52.1.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting modestly to $207.64 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.6.
- The SPX forward earnings yield is 4.59%.
- The 10-year Treasury Yield rose to 1.37% but remains within its current trading range with resistance at 1.4% and support at 1.23%. We will watch the 10-year yield closely for a possible breach above resistance.
In conclusion, yesterday’s general weaking aspects suggests some further consolidation is possible. Nonetheless, we are not yet convinced a change in our near-term macro-equity outlook of “neutral/positive” is appropriate.
SPX: 4,440/4,535
DJI: 35,000/35,495
COMPQX: 14,890/NA
NDX: 15,265/NA
DJT: 14,660/14,952
MID: 2,710/2,780
RTY: 2,200/2,300
VALUA: 9,553/9,835