Bullish Investor Sentiment Declines
The major equity indexes closed higher Monday with positive internals on the NYSE and NASDAQ on generally lighter trade.
Several positive technical events were generated on the charts that are now a mix of positive and neutral. The data dashboard is little changed and mostly neutral.
However, there was a drop in bullish investor sentiment, particularly on the part of investment advisors that, in our opinion, is healthy as it continues to suggest a contraction on what we had considered to be an excess of optimism. So, while there were some improvements yesterday, our view of the overall landscape suggests we maintain our current near-term “neutral” macro-outlook for equities.
On the charts, all the major equity indexes posted gains yesterday with positive internals on the NYSE and NASDAQ, but on rather tepid trading volumes.
- Positive chart events occurred on the SPX, NASDAQ and NDX as all closed above resistance with the both also moving back above their 50 DMAs. As such, they are now in near-term positive trends, in our opinion.
- The MID also closed above resistance while the RTY closed above its near-term downtrend line and is now neutral.
- Thus, with the SPX, NASDAQ and NDX positive, the rest are in neutral trends.
- There was no change in market breadth with the NYSE and All Exchange cumulative advance/decline lines positive and the NASDAQ’s neutral.
- No stochastic signals were generated as they remain neutral as well.
On the data, the McClellan 1-Day OB/OS Oscillators remain neutral (All Exchange: +21.6 NYSE: +16.06 NASDAQ: +25.64).
- The Rydex Ratio measuring the action of the leveraged ETF traders lifted to 0.7 but remains neutral.
- Of note, we find this week’s neutral AAII bear/bull ratio improved to 25.47/39.27 as bullish sentiment saw some erosion. However, the Investors Intelligence Bear/Bull Ratio saw an even larger decline in bulls at 17.2/54.5 versus last week’s 66.1% bulls. It remains in bearish territory but the notable drop in bulls on the II offers us some relief regarding our concerns of overly bullish outlooks on the part of investors.
- The Open Insider Buy/Sell Ratio remains neutral at 27.6 and continues to show a lack of notable buying interest from insiders.
- Valuation continues to appear extended with the forward 12-month consensus earnings estimate from Bloomberg of $189.69, 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 1.61% and below what we viewed as support at 1.63%. New support on the hourly chart suggests 1.55% as the next level. Resistance is 1.71%. the 10-year’s action has been significantly moving the equity markets of late and, we suspect, will continue to do so.
SPX: 4,153/4,225 DJI: 34,050/34,400 NASDAQ: 13,433/13,750
NDX: 13,406/13,755
RTY: 2,180/2,240 VALUA: 9,385/9,543