Data Turns a Bit More Mixed
Most of the major equity indexes closed slightly lower Tuesday, following Monday’s significant gains. Internals were positive on the NYSE while the NASDAQ saw negative breadth but positive up/down volumes. There were no technical events of import generated on the charts, leaving all but one in near-term uptrends, However, Monday’s gains did cause some shift in the data that, while not threatening, is worthy of some comment. Our net takeaway is we suspect there may be a pause/retracement of some of the resent gains over the very near term. As such, we are maintaining our near-term “neutral” macro-outlook for equities at this time.
On the charts, most of the major equity indexes posted minor losses yesterday except for the MID (page 4) and VALUA (age 5) managing minor gains.
- Market internals were generally positive. No shifts in trend were generated, leaving all in near-term uptrends except for the RTY (page 5) that remains neutral.
- Cumulative breadth remains positive on the All Exchange, NYSE and NASDAQ with all above their 50 DMAs as well.
- Given recent strength, it’s not unusual to find the stochastic levels well into overbought territory that possibly suggest some pause or consolidation of recent gains. Yet, no bearish crossovers have been generated in this regard. They can stay overbought for extended periods.
The data has turned a bit more mixed.
- The McClellan 1-day OB/OS Oscillators remain neutral for the All Exchange and NASDAQ but is slightly overbought on the NYSE (All Exchange: +37.18 NYSE: +50.49 NASDAQ: +27.65).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders has seen a significant move back into bearish territory to 1.16 from its prior 0.39 reading just from last Friday. They are back to somewhat highly leveraged long exposure.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remains mildly bearish at 17.5/54.4 with the AAII a bearish 22.47/48.53.
- The Open Insider Buy/Sell Ratio is unchanged at a neutral 34.0. Valuation still appears extended despite the jump in forward 12-month consensus earnings estimate from Bloomberg to $181.42 from $175.00 with the addition of 2022 Q2 estimates. This leaves the SPX forward multiple at 22.5 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 4.45%. The 10-year Treasury yield slipped to 1.66%. It remains in an uptrend with potential to test the 1.8% level with support at 1.55%, in our view. We continue to monitor it closely as it has been having rather significant influence on the equity markets of late.
In conclusion, we remain near-term “neutral” as it would not be unusual to experience some pause or consolidation of recent market gains before the current uptrend would be expected to resume.
SPX: 3,975/NA
DJI: 33,081/NA
COMPQX: 13,307/13,872
NDX: 13,140/13,662
DJT: 14,200/NA
MID: 2,618/2,667
VALUA: 9,104/9,284