Advance/Decline Lines Improve

The indexes closed mixed yesterday with mixed internals on the NYSE while NASDAQ internals were positive. Trading volumes declined from the prior session on both exchanges. There was some improvement in the cumulative advance/decline lines for the exchanges while the index charts saw no important technical events registered on the day. Their short term trends remain mixed. The data remains largely neutral. The net result was that there was not enough of a shift in the charts or data to alter our near term “neutral/negative” view of the indexes. Extended valuation and investor complacency continue to be important points of concern for us.

• On the charts, the RTY (page 4) and VALUA (page 5) closed higher on the day as both tested resistance but failed to violate. The rest of the indexes closed lower on the session. The NYSE saw positive breadth but negative up/down volumes while both were positive on the NASDAQ as volumes declined for both. The All Exchange A/D has turned short term positive and above its 50 DMA while the NYSE and NASDAQ A/Ds are now neutral. However, the short term trends on the index charts remain unchanged and mixed as the DJT (page 3) is in a downtrend, the COMPQX is in an uptrend with the balance neutral.

• The data remains mostly neutral including all of the McClellan OB/OS Oscillators (All Exchange:-10.27/-17.16 NYSE:-10.77/-9.93 NASDAQ:+0.77/-18.3) as is the Equity Put/Call Ratio at 0.57 and the Gambill Insider Buy/Sell Ratio at 11.2. The OEX Put/Call Ratio has turned bullish as the pros are now long calls and expecting strength at 0.5 while the crowd is nervous as seen by a 0.91 Total Put/Call Ratio (contrary indicator).

• In conclusion, although there has been some improvement in the cumulative advance/decline lines noted above, the fact that forward valuation of the SPX remains extended and historically high while investment advisors continue their complacent attitude with a 17.3/57.7 Investors Intelligence Bear/Bull Ratio (contrary indicator) suggest that the market’s shock absorbers are very weak and current risk/reward is unattractive, leaving our near term outlook at “neutral/negative”.

• Forward 12-month earnings estimates for the SPX from IBES of $133.18 leave a 5.6 forward earnings yield on a 17.9 forward multiple, over a decade high.
• SPX: 2,360/2,396
• DJI: 20,761/20,957
• Nasdaq: 5,804/NA
• DJT: 9,045/9,416
• MID: 1,697/1,744
• Russell: 1,358/1,383
• VALUA: 5,354/5,468

Advance/Decline Lines Improve

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Written By: Guy S. Ortmann, CMT