Weak Futures Suggest Violations of Support
The major equity indexes closed lower yesterday with negative internals on the NYSE while the NASDAQ, in contrast, were positive. Trading volumes rose on both exchanges from the prior session. The charts saw one index near-term trend turn neutral from positive with no other technical events of import being generated. However, yesterday’s action may prove moot as the futures are indicating a very negative open for the markets this morning that may likely violate current support levels. The data remains largely neutral although the lack of buying interest on the part of insiders remains a sore point. As such, we are staying near-term “neutral” on our macro-equity outlook, largely due to the fact that the hit to the markets on the open has the potential to turn our focus to begin looking for possible bottoming signals over the next several sessions.
On the charts, all the major equity indexes posted losses yesterday, closing at or near their intraday lows.
- NYSE internals were negative while the NASDAQ’s were positive.
- The only technical event of import generated was the DJT (page 4) closing below its near-term uptrend line that places its trend at neutral, as are all the other indexes except the NDX (page 3) and RTY (page 5) staying negative.
- While no violations of support occurred yesterday, they likely will be this morning, given the magnitude of the negative futures.
- Market breadth was unchanged with the cumulative advance/decline lines for the All Exchange an NYSE neutral and above their 50 DMAs while the NASDAQ’s remains negative and below its 50 DMA. No stochastic signals were generated.
On the data, the McClellan 1-Day OB/OS Oscillators remain neutral (All Exchange: -8.83 NYSE: -19.51 NASDAQ: -2.34).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders dipped a bit further to 0.53 as the leveraged ETF Traders have exited their leveraged long exposure. We would view leveraged short exposure on their part as a positive.
- This week’s AAII bear/bull ratio improved to 25.27/41.13, dropping to neutral. Again, it suggests, as does the Rydex, that some of the speculative froth in the market has been removed.
- However, the Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a rise in bullish sentiment at 17.1/66.1and remains in bearish territory.
- The Open Insider Buy/Sell Ratio remains neutral at 26.5. We would look for more active buying on their part as the ETF traders go short, both of which would rebuild the “wall of worry”. Such action has proven prescient historically.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $189.282, leaving the SPX forward multiple at 21.8 with the “rule of 20” finding fair value at 18.4. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield is 4.59%.
- The 10-year Treasury yield closed at 1.64%. We view support as 1.63% with resistance at 1.75. Its movements have been significantly moving the equity markets of late and, we suspect, will continue to do so.
SPX: 4,120/4,183
DJI: 34,050/34,773
COMPQX: 13,020/13,500
NDX: 12,954/13,400
DJT: 15,270/15,950
RTY: 2,180/2,240
VALUA: 9,385/9,543