All of the indexes closed lower Monday with negative internals on the NYSE and NASDAQ. However, trading volumes did decline from those of the prior session. One index violated support but there was no shift in trend among the charts, leaving them a mix of neutral and negative. We suspect high “volume at price” levels, discussed below, may come into play at this stage. The data is generally neutral but the McClellan OB/OS levels are suggesting a bounce. We have yet to see sufficient evidence to alter our near term “neutral” outlook for the major equity indexes.
On the charts, all of the indexes closed lower yesterday with negative internals.
- The only event of note was the VALUA (page 5) closing below support. Most closed near the midpoint of their intraday ranges.
- All remain below their 50 DMAs with the DJI (page 2) and VALUA in negative trends as the rest remain neutral.
The cumulative advance/decline lines for the All Exchange and NYSE are neutral and above their 50 DMAs with the NASDAQ’s negative and below. - A closer look at the charts suggests some high “volume at price” levels may have some influence. High volumes at support levels exist on the SPX (page 2), NDX (page 3) and DJT (page 4) suggesting said support levels are healthy and should hold.
- In contrast, the COMPQX (page 3) and MID (page 4) have high “volume at price” at their resistance levels, suggesting a potentially significant barrier.
- In either case, should those levels be violated, they would have greater significance.
The data is mostly neutral with the exception of the 1 day McClellan OB/OS Oscillators being oversold and implying a bounce (All Exchange:-56.14 NYSE:-60.58 NASDAQ:-56.23).
- The detrended Rydex Ratio (-0.35), Open Insider Buy/Sell Ratio (55.1) and % of SPX stocks above their 50 DMAs (41.6) are all neutral as well.
- Sentiment has turned more neutral with the new AAII Berar/Bull Ratio at 27.67/37.0. However, the Investors Intelligence Bear/Bull Ratio (contrary indicator) remains negative at 17.5/51.4.
- The 12 month forward consensus earnings estimate from Bloomberg for the SPX stands at $171.50, leaving the forward p/e at a 16.6 multiple while the “rule of twenty” finds fair value at 17.6, easing our prior valuation concerns when the SPX was trading at fair value a few weeks ago. The earnings yield stands at 6.03%.
In conclusion, while we may see a bounce signaled by the OB/OS levels, breadth and trend have not improved enough to alter our current near term “neutral” outlook for the major equity indexes.