Data Remains Largely Neutral
All of the major equity indexes closed higher Wednesday with positive internals as trading volumes declined from the previous down session. No resistance levels were violated leaving all of the charts in short term downtrends at the close. We would note the intermediate term trend remain evenly split as discussed below. The data remains largely neutral. The futures indicate a higher open due to a comment out if China regarding the trade war. As all will know, comments regarding this issue have had high impact on the markets in both directions. Guessing what the next one may be is a fool’s errand, in our opinion. As such, the charts and data suggest we maintain our near term “neutral” outlook for the major equity indexes at this time.
On the charts, all of the indexes closed higher yesterday with positive internals on lighter trading volume.
All closed near their intraday highs but none were able to break above their near term resistance levels, leaving all in their near term downtrends.
We would also note the split nature regarding their intermediate term trends. To date, the SPX (page 2), DJI (page 2), COMPQX (page 3) and NDX (page 3) have managed to bounce off of and hold their intermediate term trend lines from the beginning of the year. However, the DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5) violated those trends earlier this month and remain below them currently. This is another example of the generally split performance within the 8 indexes we cover.
High “volume at price” (VAP) levels remain resistant, in our view, suggesting a sizable amount of overhanging supply.
The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:+2.04 NYSE:+0.04 NASDAQ:+3.69).
The detrended Rydex Ratio (contrary indicator) remains neutral at -0.3 as is the % of SPX stocks trading above their 50 DMAs at 34.9.
Tuesday’s AAII Bear/Bull Ratio (contrary indicators), however, turned more bullish as the crowd found bears outnumbering bulls 43.67/23.33. This is counterbalanced by the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) as investment advisors remained overly optimistic at 17.9/49.1.
The Open Insider Buy/Sell Ratio remains neutral at 75.1.
However, recent Trim Tabs data states insider selling volume has topped $10B five months in 2019, a level not seen since 2006-2007.
Valuation continues to appear appealing, assuming current estimates hold, with the 12-month forward consensus earnings estimate from Bloomberg for the SPX at $172.12, leaving the forward p/e at a 16.8 multiple while the “rule of twenty” finds fair value at 18.5.
The 10-Year Treasury yield is 1.47%.
The earnings yield stands at 5.96%.
In conclusion, we have yet to see enough evidence to alter our near term “neutral” outlook for the major equity indexes.