Data Reverts Back To Neutral
All of the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as overall trading volumes rose from those of the prior session. While some nice gains were posted on the charts, none of the current resistance levels were violated, leaving the near term trends a mix of neutral and negative. The data has reverted back to neutral now that the McClellan OB/OS Oscillators have moderated from their previous oversold levels. As such, we are maintaining our near term “neutral/negative” outlook for the major equity indexes as a result of the current state of the charts and data.
On the charts, all of the major equity indexes closed higher yesterday with positive internals on increased trading volume.
- While the lift in prices was notable, it did not result in any of the near term resistance levels being violated, thus leaving the SPX (page 2), COMPQX (page 3) and NDX (page 3) in neutral short term trends with the rest negative.
- The fact that only the large cap indexes seem to be able to make progress while the rest flounder gives us some concern as it implies more money moving into fewer names as the underlying foundation may be weakening.
- The only technical event of note was the NDX closing back above its 50 DMA.
- The cumulative advance/decline lines are neutral on the All Exchange, NYSE and NASDAQ.
- High “volume at price” (VAP) levels are seen as supportive on the SPX, DJI and NDX. They are resistant on the rest of the charts.
The data has turned back to neutral including the 1 day McClellan OB/OS Oscillators that were oversold yesterday morning (All Exchange:-25.25 NYSE:-29.87 NASDAQ:-20.37).
- The detrended Rydex Ratio (contrary indicator) remains neutral at -0.32 as is the % of SPX stocks trading above their 50 DMAs at 40.4.
- The new AAII and Investors Intelligence Bear/Bull Ratios (contrary indicators) have seen a drop in bullish sentiment but remain neutral at 34.67/30.0 and 17.9/48.1 respectively.
- While the Open Insider Buy/Sell Ratio continues to show an increase in insider buying, it remains neutral at 73.6.
- Valuation still appears appealing assuming current forward earnings estimates for the SPX hold. The 12-month forward consensus earnings estimate from Bloomberg for the SPX is now $172.08, leaving the forward p/e at a 17.0 multiple while the “rule of twenty” finds fair value at 18.3. We would note the forward estimates have been seeing a minor but steady decline of late.
- The 10-Year Treasury yield is 1.68%.
- The earnings yield stands at 5.88%.
In conclusion, the charts, in spite of yesterday’s gains, combined with the data suggest we maintain our near term “neutral/negative” outlook for the major equity indexes in place. .