Some Stochastic Levels Enter Overbought Territory
The major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as trading volumes rose from the prior session.
Not much shift was seen on the index charts although one did turn neutral while some others entered overbought territory on their stochastic readings.
On the plus side, there was some improvement in market breadth while the data remains largely neutral. So, while the markets had a good day, we have yet to see enough evidence presented to alter our current “neutral” macro-outlook for equities in general.
On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ on higher volumes.
- However, while the SPX did manage to advance, it closed below its near-term uptrend line that technically moves it to neutral versus its prior positive trend.
- No other technical events of immediate import were generated.
- We would note, however, that the SPX, COMPQX (NASDAQ Composite) and NDX are now in overbought territory on their stochastic readings. Yet, no bearish crossover signals have been generated at this point.
- Market breadth did see some improvement with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ all positive. The NASDAQ’s did remain below its 50 DMA, however.
On the data, the McClellan 1-Day OB/OS Oscillators remain neutral (All Exchange: +29.87 NYSE: +14.38 NASDAQ: +41.65).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF rose to 0.92 as the leveraged ETF traders upped their leveraged long exposure but remain in neutral territory.
- This week’s AAII bear/bull ratio stayed neutral at 25.47/39.27. As noted yesterday, the Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a notable drop in bullish sentiment. The II Bear/Bull came in at 17.2/54.5. The 54.5% bulls dropped from the prior week’s level of 66.1.%. In our opinion, the drop on II% of bulls is an improvement from what we had previously viewed as an excess of bullish expectations.
- The Open Insider Buy/Sell Ratio is unchanged at 29.1. It still lacks what we would consider to be important signs of increasing appetite for insiders buying their own shares.
- Valuation continues to appear extended with the forward 12-month consensus earnings estimate from Bloomberg at $189.76, leaving the SPX forward multiple at 22.1 with the “rule of 20” finding fair value at 18.4. The valuation spread has been consistently wide over the past several months while the forward estimates have risen rather consistently.
- The SPX forward earnings yield is 4.52%.
- The 10-year Treasury yield closed at 1.57%. We view support at 1.55% with resistance at 1.63%. We continue to believe the moves in the 10 Year yield may well have the greatest influence over the near-term action on the equity indexes.
In conclusion, we remain “neutral” in our near-term macro-outlook for equities for reasons noted above.
SPX: 4,153/4,225 DJI: 34,050/34,400 COMPQX: 13,433/13,750
NDX: 13,406/13,755 DJT: 15,270/15,950 MID: 2,672/2,714
RTY: 2,180/2,240 VALUA: 9,385/9,543