Bottom Signals Have Yet To Appear
All the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes declined on both exchanges. Most closed at the midpoint of their intraday ranges. The charts saw two of the indexes shift back to neutral near-term trends from bearish. However, cumulative market breadth remains in a downtrend.
On the data front, the overall message remains neutral while the 10-year Treasury yield challenges its resistance level. Our net takeaway from yesterday’s action is that despite the gains achieved, we have not seen sufficient evidence appear to alter our near-term “neutral/negative” macro-outlook for equites. In our opinion, the charts and data have yet to register signals typically associated with correction bottoms.
On the charts, all the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ although trading volumes were below those of the previous negative session. Most closed near the midpoints of their intraday ranges.
- On a positive note, the DJI and DJT both managed to close above their short-term downtrend lines and are now neutral versus their prior bearish trends. As well, the DJT closed above resistance.
- So, we find the SPX, COMPQX, and NDX staying in near-term bearish trends with the remaining indexes neutral.
- Cumulative market breadth, unfortunately, was not affected by yesterday’s strength as the advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative and below their 50 DMAs.
- The SPX, COMPQX and NDX did register bullish stochastic crossover signals but are not yet actionable, in our opinion.
The data finds the McClellan 1-Day OB/OS Oscillators remaining neutral and have yet to enter oversold territory within the recent market declines (All Exchange: -5.9 NYSE: -1.66 NASDAQ: -9.16).
- The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 0.73 and remains neutral versus its bearish implications prior to the current correction.
- The Open Insider Buy/Sell Ratio is still neutral at 35.7 as of its last reading.
- This week’s contrarian AAII Bear/Bull Ratio (39.73/26.8) turned mildly bullish as bearish sentiment increased while the bulls waned. That “crowd” is now nervous. The Investors Intelligence Bear/Bull Ratio (22.1/46.5) (contrary indicator) was little changed and remains neutral.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $212.78 for the SPX. As such, the SPX forward multiple is 20.4 with the “rule of 20” finding fair value at approximately 18.5.
- The SPX forward earnings yield is 4.9%.
- The 10-year Treasury yield rose to 1.53% and is now challenging what we see as resistance at 1.55%. A violation of said resistance could prove problematic for equities by our work. We see support remaining around 1.38%.
In conclusion, yesterday’s action did not present enough evidence to warrant a change in our near-term “neutral/negative” macro-outlook for equities despite the strength. Chart trends, negative cumulative breadth and the data remain rather cautionary as signs associated with correction bottoms have yet to appear.
SPX: 4,228/4,384 DJI: 33,600/34,539 COMPQX: 14,030/14,670 NDX: 14,054/14,920
DJT: 13,976/14,522 MID: 2,617/2,680 RTY: 2,200/2,280 VALUA: 9,361/9,590
All charts courtesy of Worden
S&P 500
Dow Jones Industrials
NASDAQ Composite
NASDAQ 100
Dow Jones Transports
S&P Midcap 400
Russell 2000 Futures
