Data Remains Largely Neutral
All of the major equity indexes closed lower Tuesday with negative internals as volumes rose from the prior session on the NYSE and NASDAQ. Early morning market gains reversed with most of the indexes closing at or near their intraday lows leaving some at critical near term support levels. No support levels were actually violated at the end of the session. However, cumulative market breadth weakened further and continues to be of concern. The data remains largely neutral. We are maintaining our near term “neutral” outlook although, in our view, the overall picture appears to be deteriorating.
On the charts, all of the indexes closed lower yesterday after giving up their early session gains.
- Internals were negative on the NSYE and NASDAQ as trading volumes rose from the prior session. All closed at or near their intraday lows.
- While no support levels were violated on the charts, the DJT (page 4), MID (page 4) and RTY (page 5) all closed at what we view to be critical support. The fact that the DJT and MID formed “bearish engulfing patterns” (stock or index opens above the prior session open and closes below the prior session close) suggests said supports may be violated in the near future.
- Cumulative breadth turned negative on the NSYE, joining the All Exchange and NASDAQ.
- High “volume at price” (VAP) levels are seen as resistant on the SPX (page 2), COMPQX (page 3), DJT, MID and VALUA.
The data remains largely neutral including all of the 1 day McClellan OB/OS Oscillators (All Exchange:-33.8 NYSE:-35.17 NASDAQ:-33.4).
- The detrended Rydex Ratio (contrary indicator) remains neutral at -0.22 as is the % of SPX stocks trading above their 50 DMAs at 32.9.
- Tuesday’s AAII Bear/Bull Ratio (contrary indicators), however, turned more bullish as the crowd found bears outnumbering bulls 43.67/23.33. This is counterbalanced by the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) as investment advisers remained overly optimistic at 17.9/49.1.
- The Open Insider Buy/Sell Ratio remains neutral at 63.6.
- Valuation continues to appear appealing, assuming current estimates hold, with the 12-month forward consensus earnings estimate from Bloomberg for the SPX at $172.16, leaving the forward p/e at a 16.7 multiple while the “rule of twenty” finds fair value at 18.5.
- The 10-Year Treasury yield is 1.49%.
- The earnings yield stands at 6.0%.
In conclusion, while we are maintaining our near term “neutral” outlook for the major equity indexes, chart trends and cumulative breadth suggest the scales are tilting to a more cautionary view, in our opinion.