Some Psychology Data Sees Improvement
The major equity indexes closed lower yesterday except for the VALUA posting a minor gain. Market internals were slightly positive on the NYSE and NASDAQ as trading volumes rose from the prior session. No changes of trend, resistance or support were registered. However, two charts saw bullish stochastic crossover signals generated that may signal some strength for those charts. The data finds the McClellan OB/OS Oscillators still neutral and lacking ominous projections while some of the investor psychology data that has been of concern saw some improvements that could help rebuild the “wall of worry” as previously discussed in our recent comments. The net result of the charts and data, in our opinion, suggests we maintain our current “neutral” near-term macro-outlook for equities.
On the charts, the only index to post a gain yesterday was the VALUA as the rest closed in the red. However, internals were slightly positive on both the NYSE and NASDAQ on higher volumes.
- No violations of trend, support or resistance were generated, leaving the DJT (page 4) and VALUA positive near-term trends with the NDX (page 3) and RTY (page 5) negative and the rest neutral.
- Cumulative market breadth was left unchanged with the All Exchange & NYSE cumulative advance/decline lines neutral and the NADSDAQ’s negative and below its 50 DMA.
- One possible bullish implication is coming from the stochastic levels on the COMPQX and NDX that saw bullish stochastic crossover signals generated. Such signals have been prescient of late and may indicate some strengthening of these two indexes that have been lagging.
On the data, the McClellan 1-Day OB/OS Oscillators remain neutral and benign, in our view (All Exchange: -8.34 NYSE: -10.49 NASDAQ: -7.91).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders dropped notably to 0.55 as the leveraged ETF Traders have exited their leveraged long exposure.
- As well, this week’s AAII bear/bull ratio improved to 25.27/41.13, dropping to neutral. It suggests, as does the Rydex, that some of the speculative froth has been removed and has helped rebuild the “wall of worry” we have been looking for.
- However, the Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a rise in bullish sentiment at 17.1/66.1and remains in bearish territory.
- The Open Insider Buy/Sell Ratio at a neutral 27.3 suggests buying interest on their part remains largely absent.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg rising to $189.22, leaving the SPX forward multiple at 22.0 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 4.55%.
- The 10-year Treasury yield closed at 1.64%. We view support as 1.63% with resistance at 1.75. Its movements have been significantly moving the equity markets of late and, we suspect, will continue to do so.
DJI: 34,135/34,773
COMPQX: 13,020/13,500
NDX: 12,954/13,400
DJT: 15,270/NA
RTY: 2,180/2,240
VALUA: 9,385/9,543