Data Mixed While Valuation Remains Extended
The major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as trading volumes declined from the prior session. While all closed near their intraday lows, little impact was seen on the charts from a technical perspective with one exception. The data remains mixed while valuation remains extended, psychology remains cautionary and several of the indexes are near high volume resistance levels that could prove to be difficult to overcome. As such, we are maintaining our near-term “negative” outlook for the equity markets intact.
- On the charts, all the equity indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as trading volumes dipped.
- All closed near their intraday lows but left little technical impact on the charts with the exception oof the DJI (page 2) closing back below its 50 DMA.
- Regarding near-term trends, the DJT (page 3) is positive, the MID (page 4), RTY (page 5) and VALUA (page 5) are negative with the rest neutral.
- In our opinion, the SPX (page2), DJI, MID and VALUA have significant amounts of overhanging supply that we feel may present an important barrier to progress while the DJT has high volume support.
- The cumulative advance/decline lines for the All Exchange and NYSE are Neutral with the NASDAQ’s negative.
- All are below their 50 DMAs and in intermediate term downtrends from their July peaks.
The data remains mixed.
- The 1-day McClellan OB/OS Oscillators remain neutral (All Exchange: -0.87 NYSE: -16.19 NASDAQ: +11.39).
- The Open Insider Buy/Sell Ratio (page 9) is neutral, lifting to 65.9 as insiders have slightly increased buying while the detrended Rydex Ratio (contrary indicator page 8) remains neutral at +0.72 but shows the leveraged ETF traders slightly increasing their leveraged long exposure.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a slight rise in bearish sentiment to 19.4/51.5 yesterday. While not conclusive, it suggests there may be potential for the beginning of an important sentiment shift to the bearish camp should the markets slip further.
- The counterintuitive % of SPX issues trading above their 50 DMAs is neutral at 39.2%.
- The valuation gap remains extended, in our opinion, with the SPX forward multiple now at 22.7 via consensus forward 12-month earnings estimates from Bloomberg lifting to $146.70 while the “rule of 20” finds fair value at 19.4.
- The SPX forward earnings yield is 4.4% with the 10-year Treasury yield at 0.65%.
In conclusion, yesterday’s action did not present any evidence suggesting we alter our near-term “negative” outlook for the equity markets given breadth, sentiment, and valuation.
SPX: 3,233/3,382 DJI: 26,747/27,786 COMPQX: 10,534/11,167
NDX: 10,756/11,442 DJT: 11,086/11,546 MID: 1,780/1,899
RTY: 1,450/1,500 VALUA: 5,975/6,388