Data Mixed
All of the indexes closed lower Tuesday with negative internals on the NYSE and NASDAQ as trading volumes declined on both exchanges from the prior session. The one technical event on the charts worthy of note was the SPX breaking below its near term support as all are now in short term downtrends. The data is mixed and yielding no strong indication of directional trend. While valuation has become a bit more compelling, we have yet to see enough of a shift in the weight of the evidence to alter our near term “neutral/negative” outlook for the major equity indexes.
On the charts, all of the indexes closed lower yesterday and near their intraday lows after giving up early session gains.
- Internals were negative on lighter trading volumes on the NYSE and NASDAQ.
- As noted above, the SPX (page 2) closed below its near term support level, thus making the short term downtrends on the index charts unanimous.
- All are below their 50 DMAs with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remaining negative.
- The SPX, DJI (page 2) and COMPQX (page 3) remain above their high volume at price (VAP) levels. Should those levels be violated, such action would darken the forecast.
- The rest of the indexes are below their high VAP levels suggesting rather strong resistance.
- The stochastic levels are oversold on all but the DJI but have yet to give bullish crossover signals. They are capable of staying oversold for extended periods.
The data is mixed. The 1-day McClellan OB/OS Oscillators moved into oversold territory (All Exchange:-58.72 NYSE:-62.76 NASDAQ:-57.26).
- The detrended Rydex Ratio (-0.61), Open Insider Buy/Sell Ratio (75.0) and % of SPX stocks above their 50 DMAs (34.7) are all neutral.
- Crowd sentiment remains neutral with the new AAII Berar/Bull Ratio at 32.67/32.0. However, the Investors Intelligence Bear/Bull Ratio (contrary indicator) remains negative at 17.2/49.5 suggesting advisors remain overly bullish.
- The 12-month forward consensus earnings estimate from Bloomberg for the SPX dipped to $171.28, leaving the forward p/e at a 16.4 multiple while the “rule of twenty” finds fair value at 17.7. This has recently been largely due to the significant drop in the 10 Year Treasury yield. The earnings yield stands at 6.1%.
In conclusion, we have yet to see a shift in the weight of the evidence to alter our ear term “neutral/negative” outlook for the major equity indexes.