NASDAQ Advance/Decline Turns Negative
Opinion: All of the indexes closed higher Friday with positive internals as volumes rose on the NYSE and declined on the NASDAQ. Unfortunately, none of the current rectangle patterns that exist for most of the indexes were violated, leaving those neutral patterns intact. However, we are seeing some deterioration in breadth, discussed below. The majority of the data remains neutral as well. As such, with one exception, we have yet to see enough evidence to alter our near term “neutral” outlook for most of the indexes while continued high forward valuation of the SPX keeps the intermediate term view “neutral” as well.
· All of the indexes closed higher Friday with positive internals. However, little to no progress was made regarding the sideways trading patterns that have existed for over a month on the SPX (page 2), DJI (page 2), DJT (page 3), MID (page 4) and VALUA (page 5). The COMPQX (page 3) is the only index remaining in a near term uptrend. But the RTY (page 4) is deteriorating as it is now in a short term downtrend. Adding to that concern is the fact that the NASDAQ advance/decline has now turned negative as of late last week. In our opinion, the weakening of the small caps may be the first signal of general market weakness to come. Yet until we actually see breaks of support or negative breath trends for the other indexes, it is too early to make such a call with any degree of confidence.
· The data remains mostly neutral. All of the McClellan OB/OS Oscillators are neutral (All Exchange:-28.11/+21.1 NYSE:-12.11/+41.15 NASDAQ:-26.08/+0.87). Outliers are the OEX Put/Call Ratio of 0.69 showing the pros remain long calls and expecting strength while the Rydex Ratio (contrary indicator) still finds the leveraged ETF traders near historic highs of leveraged long exposure at cautionary 69.9. In contrast, the Gambill Insider Buy/Sell Ratio of 8.6 is just shy of a bearish reading as insiders continue to be inclined to be sellers by a wide margin at current market prices. So the data scales remain too evenly balanced at this point to imply a strong near term directional probability.
· In conclusion, we are staying with our near term “neutral” outlook for the major equity indexes with the exception of the RTY that is sending some negative signals. Extended forward valuation of the SPX near historic highs keeps our intermediate term view also at “neutral”.
· Forward 12 month earnings estimates for the SPX from IBES of $132.21 leave a 5.82 forward earnings yield on a 17.2 forward multiple, near a 12 year high.
SPX: 2,237/2.277
DJI: 19,735/19,975
COMPQX: 5,432/NA
DJT: 9,000/9,317
MID: 1,659/1,690
RTY: 1,313/1,388
VALUA: 5,262/5,388