Psychology Data Turns More Cautionary
The major equity indexes closed mixed Thursday with positive internals on the NYSE while the NASDAQ’s internals were mixed. Trading volumes declined on both exchanges from the prior session. While some uptrends were violated on an intraday basis due to early session weakness, late day buying was sufficient to regain said trends. As a result, there were no violations of trend or support at the close, leaving the bulk in their current near-term uptrends. The data, however, remains mixed. The McClellan OB/OS Oscillators remain neutral while the psychology basket has turned a bit more cautionary as valuation remains extended. As such, we are maintaining our near term “neutral” outlook for the equity markets currently.
On the charts, the indexes closed mixed yesterday.
- The NYSE had positive internals while the NASDAQ had positive breadth but negative up/down volume.
- Early session weakness was resolved during the day to the point that all closed at or near their intraday highs. No violations of support or trend were registered on the close although some were violated intraday. The close is what counts, in our opinion.
- All remain in near-term uptrends except the RTY (page 5) that is neutral.
- However, bearish stochastic signals were registered on the SPX (page 2), COMPQX (page 3) and NDX (page 4). They are not actionable at this stage, in our opinion, as violations of support have yet to occur. Nonetheless, they should be recognized.
- The cumulative advance/decline lines remain positive on the All Exchange, NYSE and NASDAQ.
The data remains mixed.
- The 1-day McClellan OB/OS Oscillators remain neutral (All Exchange: +27.64 NYSE: +23.32 NASDAQ: +32.03).
- Psychology, however, has weakened a bit further. The Open Insider Buy/Sell Ratio (page 9) is unchanged at 28.5 and just shy of a bearish signal as insiders have been selling into strength over the past several sessions.
- In contrast, the Rydex Ratio (contrarian indicator) finds the leveraged ETF traders extending their leveraged long exposure to a bearish 1.37. Historically, insiders have been on the right side of the trade.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) was little changed at a bearish 23.2/+54.6 while the AAII Bear/Bull Ratio (contrary indicator) is a bullish 42.68/28.62.
- Also, the ISEE Put/Call Ratio (page 9) is now at a level that has presaged market corrections five times since 2012. We do not typically give put/call ratios a great deal of consideration as they have not been prescient indicators. However, this one, in our view, is worthy of note.
- The valuation gap remains extended with the SPX forward multiple at 22.3 with consensus forward 12-month earnings estimates from Bloomberg lifting to $155.93 while the “rule of 20” finds fair value at 19.3. Said valuation extension has been present for the past several months.
- The SPX forward earnings yield is 4.48% with the 10-year Treasury yield at 0.73%.
In conclusion, we see the scales as fairly balanced between chart characteristics versus psychology and valuation factors, causing us to maintain out near-term “neutral” outlook for the markets.
SPX: HVS3,419/3,586
DJI: HVS28,216/29,148
COMPQX: HVS11,367/12,065
NDX: HVS11,563/12,1962
DJT: 11,403/NA MID: 1,908/HVR2,007
RTY: HVS1,600/1,650
VALUA: HVS6,4325/HVR6,747