Some Index Charts Break Support
The major equity indexes closed lower yesterday with negative internals on the NYSE and NASDAQ as trading volumes rose on both exchanges from the prior session. All closed at or near their intraday lows as buyers failed to show up as the session neared its close. Two of the index charts closed below support, leaving their near-term trends a mix of bullish, bearish and neutral. The data that suggested an oversold bounce yesterday morning from the McClellan OB/OS Oscillators failed to come to fruition, leaving the OB/OS more oversold this morning. The rest of the data remains mostly neutral. So, as market breadth continued to weaken along with some of the charts and our expected oversold bounce yet to appear, we are remaining near-term “neutral” in our macro-outlook for equities in a very selective environment.
On the charts, all the major equity indexes closed lower yesterday with negative internals on heavier trading volume.
- All closed at or near their intraday lows. Both the COMPQX (page 3) and VALUA (page 5) closed below near-term support with the COMPQX now in a negative short-term trend while the VALUA remains positive.
- The SPX (page 2), DJI (page 2) and MID (page 4) closed at support.
- So, we find the RTY (page 5) and COMPQX in near-term downtrends, the SPX and VALUA positive, with the rest neutral.
- Breadth deteriorated further with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ negative with the All Exchange and NASDAQ below their 50 DMAs.
- The recent bearish stochastic crossover signals have yet to enter oversold territory.
Regarding the data, the oversold McClellan 1-day OB/OS Oscillators failed to generate an expected bonce. They are now deeper into oversold territory (All Exchange: -93.08 NYSE: -77.53 NASDAQ: -105.06).
- The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders remains neutral at 0.57.
- The Open Insider Buy/Sell Ratio is neutral as well at 30.7.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) changed slightly to a mildly bearish 19.6/55.9 from its prior bearish level.
- Valuation still appears extended with the forward 12-month consensus earnings estimate from Bloomberg dipping at $174.54, leaving the SPX forward multiple at 22.3 while the “rule of 20” finds fair value at 18.4. We reiterate 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 stands at 4.49%.
- The 10-year Treasury yield also dipped to 1.61%, closing below its short-term uptrend line. We continue to monitor it closely as it has been having rather significant influence on the equity markets of late.
In conclusion, yesterday’s expected bounce was unfulfilled. The issues discussed above suggest we maintain our “neutral” near-term macro-outlook for equities as bottoming signals have yet to appear.
DJI: 32,357/32,800
COMPQX: 12,759/13,186
NDX: 12,690/13,140
DJT: 13,661/14,160
MID: 2,512/2,617
VALUA: 8,735/9,0953