Index Charts Confirm Bottoming "Hammer" Signals

Most Index Charts See Technical Improvements

Market Cumulative Breadth Also Improves

The major equity indexes closed mostly higher Tuesday, except for the DJT, with positive internals on the NYSE and NASDAQ as NYSE volumes dipped and NASDAQ volumes rose from the prior session.

All closed at or near their highs of the day with the charts seeing multiple technical improvements as the markets responded to the wash out of sellers in the prior session as noted by the “hammer” formations discussed yesterday.

All the index charts are now neutral as a result. And while cumulative market breadth also saw some strengthening, the data remains neutral across the board with no overbought conditions on the McClellan 1-day OB/OS Oscillators. Thus, we remain “positive” in our near-term macro-outlook for equities.

On the charts, only the DJT closed lower yesterday as the rest saw strong performance with positive internals on the NYSE and NASDAQ.

• All closed near their highs of the day as buyers held into the close post what appears to have been a selling climax in the prior session as noted by their “hammer” signals discussed in yesterday’s note.
• The charts saw several improvements. The COMPQX and NDX both closed above resistance and are now in neutral trends as they also flashed bullish stochastic crossover signals.
• The SPX lifted to neutral as it closed above its downtrend line and 50 DMA.
• As well, the RTY and VALUA closed above their downtrend lines while the VALUA closed above resistance and its 50 DMA.
• As such, all the equity charts are now in near-term neutral trends.
• Cumulative market breadth improved on the NYSE, turning positive from neutral while the All Exchange turned neutral form negative. The NASDAQ A/D remains in a downtrend at this point.

The data finds the McClellan 1-Day OB/OS Oscillators still neutral post the strong gains (All Exchange: +15.76 NYSE: +29.46 NASDAQ: +4.94).

• The % of SPX issues trading above their 50 DMAs rose to 65% and remains neutral as the Open Insider Buy/Sell Ratio slipped to 34.3, staying neutral as well.
• The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders rose slightly to 0.96, staying neutral as they remained skeptical of the rally.
• This week’s contrarian AAII Bear/Bull Ratio rose to 0.95 turning neutral from bullish. The Investors Intelligence Bear/Bull Ratio (23.5/50.6) (contrary indicator) remains neutral although the number of bullish advisors declined.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipped to $222.22 for the SPX. As such, the SPX forward multiple is 21.2 with the rule of "20" finding ballpark fair value at 18.3.
• The SPX forward earnings yield is 4.72%.
• The 10-year Treasury yield slipped to 1.75%. We view support for the 10-Year at 1.60% with resistance at 1.85%.

In conclusion, yesterday’s strong rally appears to have confirmed the bottoming “hammer” signals in yesterday’s note. With the chart and breadth improvements and the data not flashing any red signals at this point, we maintain our near-term macro-outlook for equities at “positive.’

SPX: 4,654/4,718 DJI: 35,922/36,300 COMPQX: 14,877/15,177 NDX: 15,561/15,861

DJT: 15,836/16,363 MID: 2,777/2,866 RTY: 2,175/2,210 VALUA: 9,744/9,822