Data a Mix of Neutral & Negative Implications
The major equity indexes closed mixed Tuesday with positive internals on the NYSE and NASDAQ as trading volumes declined from the prior session. No violations of trend or support were registered with one index posting another new closing high. The index trends remain a mix of bullish, bearish and neutral from a short-term perspective while the data is a mix of neutral and negative readings. As such, the overall message from the charts and data suggest we continue maintaining our near-term “neutral” macro-outlook for equities.
On the charts, the indexes closed mixed yesterday with positive internals and lighter volumes on the NYSE and NASDAQ.
- The DJT (page 2) posted another new closing high as the MID (page 4), and VALUA (page 5) closed higher as well.
- The rest of the indexes posted losses, leaving the SPX (page 2), DJI (page 2), DJT and VALUA in short-term uptrends, while the COMPQX (page 3) and RTY (page 5) are bearish and the NDX (page 3) and MID (page 4) neutral.
- Market breadth is rather lackluster with the cumulative advance/decline lines for the All Exchange and NYSE neutral with the NASDAQ’s in a downtrend.
- The SPX, DJT and DJI are now overbought on their stochastic readings but have not flashed bearish crossover signals yet.
Regarding the data, it remains a mix of neutral and negative implications.
- The McClellan 1-day OB/OS Oscillators remain neutral (All Exchange: -33.27 NYSE: -12.72 NASDAQ: -47.88).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders remains neutral but lifted to 0.82 as the leveraged ETF traders increased their leveraged long exposure.
- The Open Insider Buy/Sell Ratio saw an uptick in insider buying activity as well to 36.8 but remains in neutral territory.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remains mildly bearish 18.8/57.4.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg of $174.64, leaving the SPX forward multiple at 22.6 while the “rule of 20” finds fair value at 18.3. We reiterate 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 stands at 4.4%.
- The 10-year Treasury yield rose to 1.73 and, in our opinion, remains in an uptrend with potential to test the 1.8% level. We continue to monitor it closely as it has been having rather significant influence on the equity markets of late.
In conclusion, the combination of mixed index chart patterns, lackluster market breadth, less than thrilling data and valuation suggest we maintain our “neutral” near-term macro-outlook for equities that remain very selective regarding individual market participation.
SPX: 3,910/NA
DJI: 32,533/NA
COMPQX: 12,759/13,186
NDX: 12,690/13,140
DJT: 14,200/NA
MID: 2,570/2,634
VALUA: 8,735/9,095