Breadth Remains an Issue
The indexes closed mixed Monday with the large-cap indexes advancing as the rest declined. Internals were mixed as breadth was negative on the NYSE and NASDAQ with up/down volumes positive on lighter trade. The advances on negative breadth are becoming a bit more of a concern for us as cumulative advance/decline lines have seen some further deterioration. Otherwise, no technical events of import were generated. The data remains mostly neutral. Thus we see no reason to alter our current “neutral” outlook for the major equity indexes at this time.
On the charts, the SPX (page 2), DJI (page 2), COMPQX (page 3), NDX (page 3) and DJT (page 4) posted gains yesterday while the MID (page 4), RTY (page 5) and VALUA (page 5) posted losses.
· While no important technical events were registered on the charts, we are becoming a bit more concerned regarding breadth as the popular indexes advanced with negative breadth. This has been occurring a bit more frequently of late and suggests a possible weakening of participation.
· This is also shown by the cumulative advance/declines that are now neutral on the All Exchange and NYSE while the NASDAQ’s has actually turned negative.
· Regarding trend, only the DJI and DJT are in short term uptrends with the rest neutral.
· High “volume at price” (VAP) levels are supportive on the DJI, COMPQX, DJT, MID and VALUA.
The data still remains largely neutral.
· The 1-day McClellan OB/OS Oscillators remain neutral (All Exchange:-29.53 NYSE:-32.32 NASDAQ:-28.15). They need to drop below -50 to become oversold.
· The detrended Rydex Ratio (contrary indicator) at -0.01 is neutral.
· Today’s AAII Bear/Bull Ratio (contrary indicator) also remains neutral at 29.0/33.67.
· However, the Investors Intelligence Bear/Bull Ratio (contrary indicator) is bearish as advisors are too bullish at 16.3/58.0.
· The % of SPX stocks above their 50 DMAs (71.7) is neutral as well.
· The Open Insider Buy/sell Ratio (37.6), while remaining neutral, still continues to see a decline in insider buying activity that may worth noting.
· The 12-month forward consensus earnings estimate from Bloomberg for the SPX is $173.61, leaving the forward p/e at a 17.2 multiple while the “rule of twenty” finds fair value at 18.0.
· The 10-Year Treasury yield is 2.04%.
· The earnings yield stands at 5.99%.
In conclusion, we are maintaining our near term “neutral” outlook for the major equity indexes based on current chart trends, overall breadth conditions and the decline in insider buying activity over the past two weeks..