All the major equity indexes closed higher Tuesday with positive internals on the NYSE and NASDAQ as trading volumes dipped on the NYSE and rose on the NASDAQ from the prior session. Yet, despite the gains, there was little technical impact on the charts that remain in a mixture of near-term trends. There was some improvement in breadth, however. As well, the sentiment data saw a slight improvement but, in our opinion, continues to send a cautionary message while valuation remains extended. As such, the positive session was not sufficient to alter our current near-term “neutral/negative” outlook for the equity markets in general.
On the charts, all the major equity indexes closed higher yesterday with generally positive internals.
- However, the only technical improvement was seen on the VALUA (page 5) that managed to close back above its near-term uptrend line, turning said trend back to positive from neutral.
- None of the other indexes managed to achieve that status and remain neutral except for the DJT (page 4) that remains negative.
- Further, the DJT did manage to trade up to its near-term resistance. However, it is not uncommon, that once a chart breaks important support as the DJT did on Monday, for said chart to test resistance and then fail in subsequent sessions. We suspect that may be the case for the DJT but await confirmation in that regard.
- Market breadth did improve with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ back in positive trends and above their 50 DMAs.
The data saw some slight improvement in sentiment but, in our view, remains cautionary.
- The 1-day McClellan OB/OS Oscillators remain neutral (All Exchange: -6.46 NYSE: -9.46 NASDAQ: -5.4).
- The psychology data saw the Open Insider Buy/Sell Ratio (page 9) lift to 37.0 but remains neutral.
- As well, the leveraged ETF traders, measured by the detrended Rydex Ratio (contrarian indicator), saw the leveraged ETF traders lighten up on their leveraged long exposure to 1.05 but is still in bearish territory.
- We would reiterate, this week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) was little changed at a bearish 20.8/62.4 while the AAII Bear/Bull Ratio also saw little change at 23.43/43.53.
- In our opinion, while there was some slight improvement in sentiment, it continues to send a cautionary message.
- The forward 12-month consensus earnings estimate from Bloomberg rose to $165.79. However, valuation remains extended with a SPX forward multiple of 22.5 while the “rule of 20” finds fair value of 19.0.
- The SPX forward earnings yield is 4.45% with the 10-year Treasury yield at 0.96%.
In conclusion, yesterday’s positive market action combined with some slight improvement in sentiment data was not sufficient to alter our near-term “neutral/negative” outlook for the equity markets in general.
DJI: 30,209/NA
COMPQX: 12,700/NA
NDX: 12,650/NA
DJT: 11,974/12,370
MID: 2,222/2,312
RTY: 1,840/2,010
VALUA: 7,712/7,920