Charts Remain Bullish
All the major equity indexes closed higher Monday with positive internals on the NYSE and NASDAQ as NYSE volumes dipped with the NASDAQ’s rising from the prior session’s levels. Virtually every index except the DJT made new all-time closing highs. Yet while the bulk of the index chart patterns remain bullish, the data is now suggesting some pause or partial retracement of the recent gains is likely in the cards. As such, we believe it appropriate to maintain our current near-term “neutral” macro-outlook for equities in general.
On the charts, all the major equity indexes closed higher Monday with positive internals.
- New all-time closing highs were registered on every index except the DJT that tested resistance but failed to violate. It remains in its neutral near-term trend while all of the other indexes remain near-term bullish.
- Cumulative breadth for the All Exchange NYSE and NASDAQ remains positive as well.
- However, the stochastic levels are now in the 90s and suggesting overbought conditions are now present. They have yet, however, to generate bearish crossover signals.
The data, on the other hand, is now waving some yellow flags that suggest, in our opinion, that some pause of the recent market strength or partial retracement of gains has become more likely.
- The McClellan 1-day OB/OS Oscillators have moved into overbought territory that now suggest some caution is warranted (All Exchange: +75.49 NYSE: +71.76 NASDAQ: +78.1).
- The leveraged ETF traders measured by the detrended Rydex Ratio moved deeper into bearish territory at 1.32 from the prior 1.11 reading. They are now quite leveraged long.
- In contrast, the Open Insider Buy/Sell Ratio saw insiders pick up the pace of their selling to 25.9 and just shy of bearish levels below 25.0. The Rydex/Insider dynamic is back on a warning signal.
- This week’s Investors Intelligence Bear/Bull Ratio remains on a bearish signal at 16.9/57.8 as bullish sentiment dipped slightly.
- Valuation continues to appear extended. The forward 12-month consensus earnings estimate from Bloomberg rose again, this time to $172.22, leaving the SPX forward multiple of 22.7 while the “rule of 20” finds fair value at 18.8. As we have noted, 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 4.4% with the 10-year Treasury yield at 1.16%.
In conclusion, while the charts remain bullish, the data is now presenting several signals suggesting some near-term pause or partial retracement of some of the recent gains in the markets has become more likely.
SPX: 3,860/NA DJI: 30,620/NA COMPQX: 13,600/NA
NDX: 13,400/NA