1-Day Breadth Improves As Indexes Rise
Guy S. Ortmann, CMT | Aug 25, 2020 09:38AM ET
McClellan 1-Day OB/OS Oscillators Return To Neutral
The major equity indexes closed higher Monday with positive internals on the NYSE and NASDAQ. NYSE trading volumes rose from the prior session while those on the NASDAQ declined. The charts saw a combination of positive technical events regarding new closing highs and violations of resistance although cumulative breadth remains negative. The data is a mix of neutral and bearish signals with the valuation gap reaching its widest levels within the market rally from the March lows. So, although yesterday’s action was positive, it was not sufficient, in our opinion, to alter our current near-term “neutral” outlook for the equity markets.
On the charts, the indexes closed higher Monday with positive internals on the NYSE and NASDAQ as NYSE volumes rose and NASDAQ volumes declined from the prior session.
- Positive chart events were registered as the SPX (page 2), COMPQX (page 3) and NDX (page 3) made new closing highs while the DJI (page 2) and DJT (page 4) closed above resistance.
- The MID (page 4), RTY (page 5) and VALUA page 5) remain in neutral sideways trends with the rest positive.
- Regarding market breadth, while yesterday’s breadth was positive, the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ remain negative with the NASDAQ’s staying below its 50 DMA.
The data remains mixed.
- The 1-day McClellan OB/OS Oscillators reversed back to neutral from overbought (All Exchange (-44.71) and NASDAQ (-38.23) and NYSE (-46.2).
- The Open Insider Buy/Sell Ratio (page 9) remained neutral dipping to 41.9.
- The detrended Rydex Ratio (contrary indicator page 8) is a mildly bearish 0.84 with the leveraged ETF traders slightly reducing their leveraged long exposure.
- This week’s Investors Intelligence Bear/Bull Ratio (contrary indicator page 9) at 16.5/59.2 increased its cautionary message as investment advisors increased their already overly bullish outlooks.
- The counterintuitive % of SPX issues trading above their 50 DMAs (page 9) rose to 77.0%.
- The valuation gap extended with the SPX forward multiple lifting to 23.6 via consensus forward 12-month earnings estimates from Bloomberg at $145.65 while the “rule of 20” finds fair value at 19.4. The valuation gap is at its widest point within the rally from the March lows.
- The SPX forward earnings yield is 4.25% with the 10 ten-year Treasury yield at 0.65%.
In conclusion, our “neutral” outlook for the equity markets is unchanged. Negative breadth, psychology and valuation remain concerns despite the popular index gains.
SPX: 3,380/NA DJI: 27,578/28,893 COMPQX: 11,092/NA
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NDX: 11,277/NA DJT: 10,560/11,363 MID: 1,885/1,974
RTY: 1,550/1,625 VALUA: 6,198/6,568
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