Data Remains Generally Neutral
The major equity indexes closed mixed Monday with negative internals on the NYSE and NASDAQ as NYSE volumes rose and NASDAQ volumes dipped from the prior session. The charts saw a mix of positive and negative technical events registered.
However, our concerns regarding weakening market breadth persist as new closing highs on two of the popular indexes were achieved with negative market breadth once again. In fact, there was deterioration of breadth statistics across the board. The data remains generally neutral. As such, we remain near-term “neutral” in our macro-equity outlook.
On the charts, the major equity indexes closed mixed yesterday with negative internals on the NYSE and NASDAQ.
- On the positive side, the SPX and DJI posted new closing highs.
- Yet, weakness was seen on the RTY that closed below its near-term uptrend line and is now neutral, while the VALUA closed back below its 50 DMA.
- So, regarding trend, the COMPQX, RTY and VALUA are near-term neutral with the rest positive.
- Of possible interest is the action on the COMPQX and NDX that may have generated “hammer” formations as after seeing downside pressure intraday, managed to close at their intraday highs, suggesting a possible short-term washout of sellers. Their intraday lows will be important levels to watch, should they be violated.
- What continues to a nagging concern is the further deterioration. The All-Exchange cumulative A/D turned negative and below its 50 DMA while the NYSE A./D turned neutral from positive and below its 50 DMA as well. The NASDAQ A/D remains negative and below its 50 DMA. In our opinion, such poor breadth action makes it difficult to be enthusiastic regarding market prospects.
The data continues to send a generally neutral message, in our opinion.
- All the McClellan 1-Day OB/OS oscillators remain in neutral territory (All Exchange: -30.17 NYSE: -14.48 NASDAQ: -40.92).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders lifted to 0.85, remaining 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 $205.36 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.58%.
- The 10-year Treasury yield declined to 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, the decline in market breadth may prove to be a precursor to some market volatility while the 10-year yield continues to be monitored closely. We remain “neutral” in our near-term macro-equity outlook.
SPX: 4,420/NA 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: 2,200/2,280 VALUA: 9,415/9,704