Data Signals Remain Mixed
Opinion
Yesterday’s action in the equity indexes was of little consequence from a technical perspective. Meanwhile, the market internals remain far from “healthy” by our work. With the data on mixed signals, we continue to see the lack of breadth and volume as important issues that continue to suggest that not all is as well as the recent retracement off of the correction lows may imply.
- On the chart, there were only two technical events that sent counterbalancing signals. The DJI (page 2) closed above near term resistance while the RUT (page 4) closed back below its 50 DMA. While performance was mixed, breath was barely positive on the NYSE while NASDAQ breadth was negative. Overall volumes remained subpar.
- At the risk of sounding like a broken record, the shriveling of volume on the recent rally suggests to us a lack of serious buying from institutions while poor breadth implies any buying is becoming more selective in nature. Neither of these conditions are those associated with healthy bull markets. As such, we still view the recent bounce with some skepticism. And although the various stochastic readings should only be used as confirmation, the fact that all of them are in the mid to high 90s implies some downside risk should they cross back below their 80 signal lines.
- The data remains mixed. At this point, only the NYSE 1 day McClellan OB/OS is overbought at +74.71. The balance are neutral. The detrended Rydex Ratio (contrary indicator) has lifted into mildly bearish territory at .51 while the new Investors Intelligence Bear/Bull Ratio (contrary indicator) remains a cautionary 16.2/49.5. We don’t consider the data, at these levels, to be all that instructive of potential performance. So, the charts remain the current focus.
- In conclusion, given the internal issues discussed above, we continue to be suspicious of the recent market lift.
- For the longer term, we remain bullish on equities as they remain comparatively undervalued with a 6.42% forward earnings yield for the SPX based on 12 month IBES forward earnings estimates of $127.45 versus the 10 Year Treasury yield of 2.43%.
- SPX: 1,960/1,987
- DJI: 16,802/16,995
- NASDAQ: 4,407/???
- DJT: 8,211/8,457
- MID: 1,409/1,429
- RUT: 1,120/1,169