Near-Term Chart Trends Unchanged
The major equity indexes closed mixed Wednesday with positive internals on the NYSE while the NASDAQ internals were negative as the equity indexes continued their mixed performance. Two new closing highs were achieved while the range of near-term chart trends were unchanged with a combination of bullish, neutral and bearish near-term projections. Market breadth remains mixed as well with some positive and some negative. Meanwhile, the data remains generally neutral with the exception of psychology that still suggests some excess of bullish expectations. In short, the recent bifurcated action of the markets continues with no signs of shifting at present. However, in our opinion, the move into the economic recovery stocks appears a bit extended on the charts while some of the growth names that have suffered recently are now trading at very reasonable PEGs (P/E/growth), in our opinion.
On the charts, the indexes closed mixed yesterday with positive NYSE internals with the NASDAQ’s negative.
- The DJI (page 2), DJT (page 4), SPX (page 2) and VALUA (page 5) closed higher with the DJT and DJI posting new closing highs. The rest posted losses.
- So, the near-term chart trends find the DJI, DJT and VALUA still in uptrends with the SPX, MID (page 4) and RTY (page 5) neutral.
- The COMPQX (page 3) and NDX (page 3) are still in short-term downtrends, as the split in market action continued.
- Cumulative market breadth remains negative for the All Exchange and NASDAQ with the NYSE’s positive.
On the data, the McClellan 1-Day OB/OS oscillators remain neutral (All Exchange: -23.04 NYSE: -7.75 NASDAQ: -36.44).
- Sentiment indicators were little changed and remain at cautionary levels.
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders is still in bearish territory at 1.4.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a drop in bullish sentiment at 16.5/59.2 as did the AAII bear/bull ratio at 23.6/49.7. However, both of those sentiment contrarian indicators remain in bearish territory.
- The Open Insider Buy/Sell Ratio remains neutral at 25.4 as insiders have yet to exhibit any notable buying interest.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $188.41. This leaves the SPX forward multiple at 22.1, down from 22.9 last week as the SPX stalled while forward estimates rose.
- The “rule of 20” finds fair value at 18.4. 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 4.5%.
- The 10-year Treasury yield closed at 1.58%. We continue to view 1.55% as support with 1.63% as resistance.
In conclusion, the recent bifurcation of the markets and data still suggests we maintain our near-term “neutral/positive” macro-outlook for equities.
DJI: 33,800/NA
COMPQX: 13,466/13,881
NDX: 13,316/13,755
DJT: 14,920/NA
RTY: 2,250/2,300
VALUA: 9,293/9,500