Data Raising Some Yellow Flags
The major equity indexes closed mostly higher Tuesday with positive internals on the NYSE while the NASDAQ saw positive breadth but negative up/down volume as the stay-at-home stocks weakened further. Most of the indexes closed higher on the day with several making new all-time closing highs while the COMPQX and NDX posted losses. The bulk of the charts remain in near-term uptrends. However, the data is raising some yellow flags regarding the OB/OS levels, psychology, and valuation. As such, while we are maintaining our near-term “neutral/positive” outlook for the equity markets, the data is suggesting there may be more attractive buying opportunities going forward than currently exist.
On the charts, the indexes closed mostly higher yesterday with positive internals on the NSYE while the NASDAQ saw positive breadth but negative up/down volume.
- All closed higher except the COMPQX (page 3) and NDX (page 3) with both yielding “bearish crossover” signals and the COMPQX closing below its near-term uptrend line, turning said trend to neutral from positive.
- On the positive side, the DJT (page 4), MID (page 4), RTY (page 5) and VALUA (page 5) made new all-time closing highs with the DJT and MID closing above resistance.
- As such, all are in near term uptrends except the COMPQX being neutral.
- The cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain positive and above their 50 DMAs.
- The rest of the stochastic readings remain overbought other than the COMPQX and NDX as noted.
The data has again turned a bit more cautionary, in our view.
- The 1-day McClellan OB/OS Oscillators are overbought on the All Exchange, NYSE, and NASDAQ (All Exchange: +68.11 NYSE: +83.32 NASDAQ: +55.85).
- Also, the Open Insider Buy/Sell Ratio (page 9), has now turned bearish at 24.6 as insiders further intensified their selling activity. While not necessarily a great timing tool, the insider B/S ratio, in our opinion, should not be ignored.
- In contrast, the Rydex Ratio, (contrarian indicator) remains bearish at 1.21 as the leveraged ETF traders are very leveraged long. As stated yesterday, the insider/Rydex dynamic is now going in a negative direction.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) saw a decline in bullish advisors but remains bearish at 20.6/53.6.
- The valuation gap remains extended with the SPX forward multiple of 22.4 as consensus forward 12-month earnings estimates from Bloomberg lifted to $158.22 while the “rule of 20” finds fair value at 19.0.
- The SPX forward earnings yield is 4.46% with the 10-year Treasury yield at 0.97%.
In conclusion, while we remain near-term “neutral/positive” on the equity markets, the data and valuation are suggesting better buying opportunities may be forthcoming.
SPX: HVS3,506/3,580
DJI: 28,440/HVR29,409
COMPQX: HVS11,477/11,958
NDX: HVS11,611/12,185
DJT: HVS11,603NA
MID: HVS2,010/NA
RTY: 1,650/NA
VALUA: 6,683/NA