NASDAQ Cumulative A/D Questionable
Most of the major equity indexes closed lower yesterday, with two exceptions, as internals were mixed on the NYSE and NASDAQ and as trading volumes declined from those of the prior session. No major technical events of import were generated on the charts as the data remains generally neutral. However, the NASDAQ cumulative advance/decline line is of some concern at this point as discussed below. With that said, we are maintaining our near term “neutral” outlook for the major equity indexes at this time.
On the charts, the indexes closed mostly lower yesterday with the two exceptions of the DJT (page 4) and RTY (page 5) posting modest gains.
· Internals were mixed as the NYSE saw positive breadth but negative up/down volumes while the NASDAQ saw the opposite.
· No technical events of import were registered on the charts leaving the SPX (page 2), COMPQ (page 3) and NDX (page 3) in short term uptrends while the rest of the indexes are neutral.
· The short term cumulative advance/decline lines remain positive on the All Exchange, NYSE and NASDAQ.
· However, the NASDAQ’s intermediate term trend is quite troubling, in our view, as while the COMPQX approaches its recent all-time highs, the cumulative a/d is making a significantly lower high than that registered at its September peak. It suggests a significant deterioration of the number of stocks in that index managing to participate in rallies.
· The stochastics remain overbought on most of the indexes while high “volume at price” (VAP) levels are supportive on the SPX, DJI, COMPQX and NDX while resistance on the rest.
The data remains mostly neutral including all of the 1-day McClellan OB/OS Oscillators (All Exchange:+24.15 NYSE:+16.95 NASDAQ:+33.4).
· The detrended Rydex Ratio (contrary indicator) has turned bullish at -1.99 suggesting a more cautious crowd outlook.
· The % of SPX stocks trading above their 50 DMAs is a neutral 61.2%.
· This week’s AAII Bear/Bull Ratio (contrary indicators) also turned bullish at 38.67/23.33, echoing the Rydex data.
· However, the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) remained bearish at 17.2/47.6 suggesting an excess of bullish sentiment on the part of investment advisors continues.
· The Open Insider Buy/Sell Ratio is neutral at 46.6.
· Valuation seems appealing, but a bit less so, with forward 12-month earnings estimates for the SPX dipping again to $174.04 via Bloomberg, leaving the forward p/e at a 17.2 multiple while the “rule of twenty” finds fair value at 18.3.
· The 10-Year Treasury yield stands at 1.75%.
· The earnings yield is 5.82%.
In conclusion, while the charts have offered some encouragement of late, deteriorating breadth on the NASDAQ as well as other issues discussed in yesterday’s comment suggest we maintain our near term “neutral” outlook for the major equity indexes.