All the major equity indexes closed higher Monday with positive internals on the NYSE and NASDAQ as trading volumes declined from the prior session. The charts saw some improvements with violations of downtrends and resistance, leaving them a mix of neutral and negative near-term trends while cumulative breadth improved slightly.
The data turned mostly neutral given yesterday’s rise but still finds insiders doing more buying than selling over the past several sessions. Valuation remains extended but continues to see a lift in forward 12-month consensus earnings estimates for the SPX via Bloomberg. As such, we are maintaining our near term “neutral” outlook for the equity markets given the state of the charts and data.
On the charts, all the indexes closed higher yesterday with positive internals on lighter trading volumes on both the NYSE and NASDAQ. Positive technical events were generated on the three of the charts.
The MID (page 4 from PDF below) saw a close above resistance, its near-term downtrend line and back above its 50 DMA that were confirmed with a bullish stochastic crossover signal. The VALUA (page 5) closed above its near-term downtrend line with a bullish stochastic signal as well while the RTY (page 5) also closed above its downtrend line. The DJT (page 4) also had a bullish stochastic signal but said signal needs to be confirmed. Market breadth improved enough to turn the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ from negative to neutral but remain below their 50 DMAs. The data turned more neutral. The 1-day McClellan OB/OS Oscillators moved back to neutral as a result of yesterday’s gains (All Exchange: -43.44 NYSE: -39.36 NASDAQ: -47.89). The Open Insider Buy/Sell Ratio (page 9) rose again to 64.6.
While still neutral, insiders continue to increase their buying versus selling activity as has been the case over the past several sessions. The Rydex Ratio (contrarian indicator) was little changed at a neutral 0.63 as the leveraged ETF traders have recently lightened up on their leveraged long exposure. This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) remains little changed and bearish at 20.2/60.6. The valuation gap has slipped back to overvalued levels with the SPX forward multiple rising to 21.1 with consensus forward 12-month earnings estimates from Bloomberg lifting to $157.17 while the “rule of 20” finds fair value at 19.2. We would note said estimates have been moving north over the past few months rather consistently.
The SPX forward earnings yield is 4.75% with the 10- year Treasury yield rising to 0.85%. In conclusion, the charts and data suggest we maintain our current “neutral” outlook for the equity markets at this time.
SPX: HVS3,250/HVR3,360 DJI: 26,290//27,500 COMPQX: HVS10,759/11,346 NDX: 10,870//11,495 DJT: 10,954/11,425 MID: 1,910/HVR1,971 RTY: 15948/1,590 VALUA: 6,265/6,5510