Detrended Rydex Ratio Turns Neutral
The major equity indexes closed mostly higher Tuesday with positive internals on the NYSE while the NASDAQ’s were negative. Trading volumes rose on the NYSE and declined on the NASDAQ from the prior session. Two of the indexes made new closing highs on the charts although one was achieved by a matter of pennies, leaving the near-term trends a mix of bullish and neutral implications.
Market breadth saw some narrowing while the data saw the detrended Rydex ratio (contrarian indicator) drop to neutral from bearish as discussed below. The net result of the action left the weight of the evidence suggesting we maintain our current “neutral/positive” macro-outlook for equities.
On the charts, the major equity indexes closed mostly higher yesterday with the exceptions of the COMPQX and NDX posting losses.
- Internals were positive on the NYSE and negative for the NASDAQ.
- Both the SPX and DJI managed to post new closing highs although the SPX’s achievement surpassed the prior high by less than one point.
- The close found the near-term trends unchanged with the SPX, DJI, COMPQX and NDX bullish and the rest neutral.
- Also, the VALUA closed back above its 50 DMA as it has seesawed above and below that metric over the past few sessions.
- Breadth saw some slight deterioration as the cumulative advance/decline line for the NYSE turned neutral from bullish and below its 50 DMA as are the A/Ds for the All exchange and NASDAQ.
- No stochastic signals were generated.
The data continues to send a generally neutral message, in our opinion.
- All the McClellan 1-Day OB/OS oscillators remain in neutral territory (All Exchange: +6.33 NYSE: +4.81 NASDAQ: +7.08).
- The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders dipped to 0.95 as the they pulled back further on their leveraged long exposure and is now neutral versus its prior bearish signal.
- Meanwhile, the Open Insider Buy/Sell Ratio lifted ever so slightly to 37.2 but remains in its neutral range.
- This week’s contrarian AAII bear/bull ratio (28.8/34.29) and Investors Intelligence Bear/Bull Ratio at 16.3/54.1 (contrary indicator) saw little movement, leaving the AAII neutral and the II bearish.
- Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $205.37 for the SPX. As such, the SPX forward multiple is 21.6 with the “rule of 20” finding fair value at approximately18.7.
- The SPX forward earnings yield is 4.63%.
- The 10-year Treasury yield closed at 1.34% after violating resistance at Monday’s close. We now view resistance at 1.4% with support at 1.23%. The shift of the 10-year yield into a higher trading range could cause some issues for the markets, should it continue to lift.
In conclusion, yesterday’s session offered little evidence to warrant a change in our near-term “neutral/positive” macro-outlook for equities. However, we are keeping a close eye on the 10 Year that could prove to be a headwind.
SPX: 4,389/NA DJI: 34,862/NA COMPQX: 14,585/NA NDX: 14,868/NA
DJT: 14,243/14,701 MID: 2,667/2,729 RTY: 2,190/2,280 VALUA: 9,415/9,704