Data and Charts Remain Largely Neutral
All of the major equity indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as NYSE volumes declined from the prior session while the NASDAQ’s rose. One index broke below near term support as the rest tested their respective support levels with some forming “ascending triangle” patterns. Cumulative market breadth saw some deterioration. The data remains largely neutral. The see-saw action seen over the past month persists with no resolution to date. So with the charts and bulk of the data continuing to send neutral messages, we are maintaining our near term “neutral” outlook for the major equity indexes.
On the charts, all of the indexes closed lower yesterday with negative internals on the NYSE and NASDAQ.
- All tested their respective near term support levels successfully with the exception of the COMPQX (page 3) that closed below its prior support.
- All of the charts remain in near term sideways patterns as the see-saw action of the past month continued.
- We would note the SPX (page 2), DJI (page 2), COMPQX and NDX (page 3) appear to be forming “ascending triangle” patterns that have been forming over the past month. Said patterns consist of a series of higher lows with a flat/ horizontal top suggesting buyers have been getting more aggressive on each subsequent pullback. These patterns are considered to have a potentially bullish tone should the resistance levels be violated. However, violations have yet to appear and may not. As such, they are not yet actionable.
- On the cautionary side, breadth has deteriorated with the All Exchange and NYSE cumulative advance/decline lines turning neutral form positive as the NASDAQ’s has turned negative.
- High “volume at price” (VAP) levels are supportive on the DJI and NDX and resistant on the rest.
The data remains largely neutral including all of the 1-day McClellan OB/OS Oscillators (All Exchange:+9.82 NYSE:+16.74 NASDAQ:+2.71).
- The detrended Rydex Ratio (contrary indicator) remains neutral at -0.27 as is the % of SPX stocks trading above their 50 DMAs at 39.6.
- The new AAII Bear/Bull Ratio (contrary indicators) remains bullish at 41.67/25.0. It continues to be counterbalanced by the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) as investment advisors remained somewhat overly optimistic at 18.7/43.9 .The Open Insider Buy/Sell Ratio remains neutral at 81.7.
- Valuation continues to appear appealing, assuming current estimates hold, with the 12 month forward consensus earnings estimate from Bloomberg for the SPX at $172.15, leaving the forward p/e at a 16.9 multiple while the “rule of twenty” finds fair value at 18.5.
- The 10-Year Treasury yield is 1.47%.
- The earnings yield stands at 5.92%.
In conclusion, the mixed chart signals, market breadth and data still suggest we maintain our near term “neutral” outlook for the major equity indexes.