Several Index Charts Weaken
All the major equity indexes closed lower Tuesday with negative internals in the NYSE and NASDAQ as trading volumes rose on both exchanges from the prior session. Several of the index charts suffered technical damage as near-term uptrends were violated as well as one closing below support, thus turning bearish.
Weak market breadth, that has been a focus of our comments of late, deteriorated further with the cumulative advance/decline lines all in near-term downtrends.
Meanwhile, the data finds some of the McClellan OB/OS Oscillators oversold with the rest generally neutral. As such, we have yet to see enough evidence presented to suggest a change in our current near-term macro-outlook for equities from “neural”. Some stabilization in breadth may likely be required to become more optimistic.
On the charts, all the major equity indexes closed lower yesterday with negative internals and higher trading volumes on the NYSE and NASDAQ.
- The charts saw the SPX, DJI, NDX, and MID all close below their near-term uptrend lines and are now neutral versus their prior bullish implications.
- As well, the RTY closed below its near-term support level and ins now in a downtrend.
- So, only the DJT is in a positive trend with the RTY negative and the rest neutral.
- Market breadth, that became a concern several sessions ago, deteriorated further as the NYSE cumulative A/D turned negative and below its 50 DMMA, joining the All Exchange and NASDAQ in that condition. It’s difficult to make a bullish case when breadth is still deteriorating.
- No stochastic signals were generated.
The data, except for the 1-day McClellan OB/OS Oscillators, continues to send a generally neutral message, in our opinion.
- The All Exchange and NASDAQ McClellan 1-Day OB/OS oscillators are now oversold with the NYSE’s remaining neutral (All Exchange: -58.18 NYSE: -48.22 NASDAQ: -64.67).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders lifted to 0.88 but remains neutral.
- The Open Insider Buy/Sell Ratio was unchanged at 41.4 and remains neutral as well.
- This week’s contrarian AAII bear/bull ratio (29.1/36.42) and Investors Intelligence Bear/Bull Ratio at 15.9/56.4 (contrary indicator) and are respectively neutral and bearish.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting slightly to $205.43 for the SPX. As such, the SPX forward multiple is 21.7 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.62%.
- The 10-year Treasury yield was unchanged at 1.26%. We view resistance as 1.4% with support at 1.23%. We reiterate the recent shift of the 10-year yield into a higher trading range could cause some issues for the markets.
In conclusion, market breadth has continued to deteriorate as the index charts have started to se some weakening as well. As such, we believe it appropriate to maintain our near-term “neutral” macro-outlook for equities.
SPX: 4,420/4,468 DJI: 35,050/NA COMPQX: 14,585/14,883 NDX: 14,868/15,152
DJT: 14,518/15,084 MID: 2,677/2,752 RTY: 2,120/2,200 VALUA: 9,415/9,704