S&P 500 Chart Turns Near-Term Negative

Chart And Data Signals Have Yet To Appear

The major equity indexes closed lower Friday with negative internals on the NYSE while the NASDAQ’s were positive with heavy trading volumes on both due to options expiration. All closed at or near their intraday lows. Yet only one chart saw technical damage, that being the SPX, leaving the charts for the major indexes a mix of neutral and negative trends. Meanwhile, the data continues to send a mix of neutral and negative signals while market breadth, as discussed in our recent comments, remains negative and continues to deteriorate. Very weak futures this morning suggest a continuation of Friday’s weakness. So, while we are formally maintaining our near-term “neutral” macro-outlook for equities, over the past week we have suggested any sell signals in individual names should be honored. We remain of that opinion as no bottoming signals from the charts or data have been presented thus far.

On the charts, all the major equity indexes closed lower Friday with negative internals on the NYSE while the NASDAQ’s were slightly positive. No late day buying of significance appeared, leaving all at or near their intraday lows.

• Yet only the SPX (page 2) saw technical damage as it closed below support and its 50 DMA, turning its trend to negative from neutral.
• The DJI (page 2), RTY (page 5) and MID (page 4) are negative as well with the rest neutral.
• Poor market breadth that has been a concern continued to weaken with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ all negative and below their 50 DMAs.
• No stochastic signals were generated.

The data still finds the McClellan 1-Day OB/OS Oscillators in neutral territory (All Exchange: -14.06 NYSE: -29.88 NASDAQ: -3.1).

• The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders dipped to 1.1 but still finds the ETF traders leveraged long and on a bearish signal.
• The Open Insider Buy/Sell Ratio was lifted to 37.8 but remains neutral as insiders did begin to nibble.
• In our opinion, we may need to see more dramatic levels on the OI B/S and Rydex before things settle down.
• Last week’s contrarian AAII Bear/Bull Ratio and Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) were little changed. The AAII remained neutral (31.17/40.63) while the II turned neutral from bearish at 21.1/52.6.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipped to $207.39 for the SPX. As such, the SPX forward multiple is 21.4 with the “rule of 20” finding fair value at approximately18.6.
• The SPX forward earnings yield is 4.61%.
• The 10-year Treasury yield rose to 1.3% but remains within its current trading range with resistance at 1.4% and support at 1.23%. A move above 1.4% would, in our view, suggest 1.5% as the next level.

In conclusion, while we remain “neutral” in our near-term outlook for equities, the charts and data continue to suggest some caution is warranted. We reiterate our belief that “sell signals” on individual names should be honored.

SPX: 4,3670/4,490

DJI: 34,352/34,953

COMPQX: 14,890/15,379

NDX: 15,265/15,690

DJT: 14,239/14,732

MID: 2,673/2,737

RTY: 2,200/2,225

VALUA: 9,388/9,670