Data Remains Neutral
All of the indexes closed lower Tuesday with negative internals on the NYSE and NASDDAQ as trading volumes declined from the prior up session. All closed at or near their intraday lows but no support levels were violated, leaving the near term trends a mix of neutral and negative. The data is neutral across the board. The futures are pointing to a positive open. However, the SPX is approaching its resistance level consisting of high volume that may prove difficult to surpass. We would also not the split performance of the indexes since May, discussed below. As such, we are maintaining our near term “neutral” outlook for the major equity indexes at this time.
On the charts, all of the indexes closed lower yesterday with negative internals on lighter volume.
All closed at or near their intraday lows but no support levels were violated on the charts, leaving all in near term neutral/sideways trends with the exceptions of the RTY (page 5) and VALUA (page 5) remaining negative.
Regarding trends, one issue has been bothering us is the split performance within the indexes since last May. While the large cap indexes have made higher lows and higher highs, the DJT (page 4), VALUA (page 5) and RTY (page 5) have done the opposite by establishing a series of lower highs and lower lows. This lopsided performance is one reason why the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain neutral with the All Exchange and NASDAQ below their 50 DMAs.
Currently, “high volume at price” (VAP) levels are seen as resistant on the COMPQX (page 3), DJT, MID and VALUA. They are supportive on the DJI (page 2) and NDX (page 3).
The SPX ETF is approaching high volume resistance this morning that may be an important factor should it be violated or prove to be a stall point.
The data is neutral including all of the 1-day McClellan OB/OS Oscillators (All Exchange:+1.62 NYSE:+1.39 NASDAQ:+3.37).
- The detrended Rydex Ratio (contrary indicator) remains neutral at -0.4 as is the % of SPX stocks trading above their 50 DMAs at 38.2.
- Tuesday’s AAII Bear/Bull Ratio (contrary indicators) has actually turned bullish as the crowd now finds bears outnumbering bulls 38.6/27.33.
- The Open Insider Buy/Sell Ratio remains neutral at 82.3.
- Valuation continues to appear appealing with the 12 month forward consensus earnings estimate from Bloomberg for the SPX at $172.12, leaving the forward p/e at a 16.9 multiple while the “rule of twenty” finds fair value at 18.4.
- The 10-Year Treasury yield is 1.53%.
- The earnings yield stands at 5.93%.
In conclusion, while valuation looks appealing, assuming current earnings forecasts hold, mixed market breadth and index performance combined with the data suggest we maintain our near term “neutral” outlook for the major equity indexes.
SPX: 2,862/2,930
DJI: 25,704/26,253
Nasdaq: 7,804/8,044
NDX: 7,551/7,738
DJT: 9,737/10,159
MID: 1,846/1,899
Russell: 1,460/1,516
VALUA: 5,880/5,983