The major equity indexes closed mostly lower Monday with mixed internals on the NYSE while the NASDAQ’s were negative. While one index managed to post a new closing high, two others violated support as one also violated its uptrend line. So, the charts are sending a more mixed picture while the data discussed below suggests we are not of the woods yet with more downside potential still in the mix. While we are staying “neutral” in our macro-outlook largely due to most of the index charts remaining in near-term uptrends, the data suggests that technical sell signals generated for individual names within portfolios should be honored.
On the charts, the major equity indexes closed mostly lower yesterday with the DJI (page 2), DJT (page 4) and VALUA (page 5) posting gains as the rest declined.
- The NYSE saw negative breadth but positive up/down volume while the NASDAQ’s internals were negative across the board.
- On the plus side, the DJT (page 4) made a new closing high. However, the COMPQX (page 3) and NDX (page 3) that had been leading the markets higher over the past several months both broke below support while the NDX also violated its near-term uptrend line.
- So, regarding trend, the RTY (page 5) is negative with the NDX neutral and the rest still in uptrends.
- Market breadth has come more into question as the All-Exchange cumulative advance/decline line is positive, but the NYSE’s is neutral with the NASDAQ’s negative.
- All but the DJI and DJT generated bearish stochastic crossover signals over the past week.
Looking at the data, the McClellan 1-day OB/OS Oscillators remain neutral despite yesterday’s selloff (All Exchange: -33.41 NYSE: -23.3 NASDAQ: -41.4). They are not yet oversold.
- The OpenInsider Buy/Sell Ratio/Rydex Ratio remains cautionary. The OpenInsider Buy/Sell Ratio at 19.0 remains in bearish territory as insiders remain largely on the sell side. In contrast, the leveraged ETF traders measured by the detrended Rydex Ratio (contrarian indicator page 8) are still leveraged long at 1.22. The insider/ETF Trader dynamic continues to suggest caution, in our opinion.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remains on a bearish signal at 18.1/59.1.
- Valuation continues to appear extended. The forward 12-month consensus earnings estimate from Bloomberg of $172.49 leaves the SPX forward multiple at 22.5 while the “rule of 20” finds fair value at 18.6. Again, the valuation spread has been consistently wide over the past several months while the forward estimates have continued to rise consistently.
- The SPX forward earnings yield is 4.45%.
- The 10-year Treasury yield has risen notably of late closing at 1.37%. In our opinion, the 10 Year chart suggests potential for a move up to 1.5%.
In conclusion, while we are formally “neutral” in our near-term outlook, the data suggests more downside. Sell signals on individual names should be honored.
SPX: 3,860/3,930
DJI: 31,143/NA
COMPQX: 13,430/13,860
NDX: 13,032/13,400
RTY: 2,175/2,300 VALUA: 8,470/8,845