More New Highs On Negative Breadth
The major equity indexes closed mixed Friday with negative internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the prior session. While some new closing highs were registered on the charts, they were achieved, once again, on negative breadth.
The selectivity of market participants during advances has, in our opinion, reappeared and is once again of some concern. While the charts remain a mix of bullish and neutral trends, the data remains generally neutral with some further improvement in the Insider/Rydex dynamic that we view as a positive.
As such, while the charts and data are somewhat nonthreatening at this point in time, the deterioration of market breadth may suggest a weakening internal structure. Thus, we are shifting our near-term macro-outlook for equities from “neutral/positive” to “neutral.”
On the charts, the major equity indexes closed mixed Friday with negative internals on the NYSE and NASDAQ.
- As they closed at varying points within their intraday ranges, the close found the SPX and DJI at new closing highs while the DJT closed above resistance.
- No changes in near-term trend occurred, leaving all in near-term uptrends except for the COMPQX and VALUA staying neutral.
- Market breadth did see some deterioration as the NASDAQ cumulative advance/decline line turned negative and below its 50 DMA. As noted above, market advances on negative breadth are, in our view, less than optimal and implies a potential weakening of internal stability. The All-Exchange A/D is neutral with the NYSE A/D positive.
- No stochastic signals were generated.
The data continues to send a generally neutral message, in our opinion.
- All the McClellan 1-Day OB/OS oscillators remain in neutral territory (All Exchange: -5.86 NYSE: +10.07 NASDAQ: -17.26).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped a bit further to 0.77, remaining neutral, as they pulled back further on their leveraged long exposure.
- In contrast, the Open Insider Buy/Sell Ratio lifted to 41.4 as insiders did some buying but remains in its neutral range. It has been our experience that when the leveraged ETF traders are becoming more cautious as insiders step up their buying activity, concerns regarding investor complacency diminish.
- Last week’s contrarian AAII bear/bull ratio (28.8/34.29) and Investors Intelligence Bear/Bull Ratio at 16.3/54.1 (contrary indicator) saw little movement, leaving the AAII neutral and the II bearish.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipped slightly to $205.34 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately 18.7.
- The SPX forward earnings yield is 4.6%.
- The 10-year Treasury yield declined to 1.3%. We view resistance as 1.4% with support at 1.23%. We reiterate the recent shift of the 10-year yield into a higher trading range could cause some issues for the markets.
In conclusion, while the charts and data remain encouraging, the decline in market breadth may prove to be a precursor to some market volatility while the 10-year Yield continues to be monitored closely.
SPX: 4,420/NA DJI: 35,050/NA COMPQX: 14,585/14,883 NDX: 14,868/15,152
DJT: 14,518/15,084 MID: 2,677/2,752 RTY: 2,200/2,280 VALUA: 9,415/9,704