Chart Trends And Breadth Improve

Data Remains Largely Neutral

The major equity indexes closed mostly higher Friday with the exceptions of the COMPQX and NDX posting losses. Internals were positive on the NYSE and NASDAQ as NYSE volumes declined and NASDAQ volume rose from the prior session.

Two of the index charts shifted from neutral to positive while market breadth saw some improvement as well. Meanwhile, the data continues to send a generally neutral message. As such, we are maintaining our near-term “neutral/positive” macro-outlook for the major equity indexes. We would note the 10-year Treasury tested resistance Friday and will now be monitored for a possible upside violation.

On the charts, the major equity indexes closed mostly higher Friday with positive market internals on the NYSE and NASDAQ. Only the COMPQX and NDX posted losses.

• The charts saw some positive events as the SPX and DJI made new closing highs with the DJI turning positive from neutral after violating its resistance level.
• The RTY closed above resistance as well and is now also near-term positive while the VALUA managed to close above its 50 DMA.
• So, now the SPX, DJI, COMPQX, NDX and RTY are in near-term uptrends with the DJT, MID and VALUA neutral.
• Market breadth saw some improvement with the NYSE cumulative advance/decline line turning positive and back above its 50 DMA as the NASDAQ A/D moved above its 50 DMA as well. It and the All-Exchange A/D remain neutral.
• No stochastic signals were generated.

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The data is still sending a generally neutral message, in our opinion.

• All the McClellan 1-Day OB/OS oscillators are in neutral territory and not yet threatening (All Exchange: +18.02 NYSE: +22.15 NASDAQ: +15.21).
• The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders rose to 1.23 and remains bearish.
• Meanwhile, the Open Insider Buy/Sell Ratio dipped to 34.8 but remains in its neutral range as insiders decreased their buying activity.
• Last week’s contrarian AAII bear/bull ratio (27.17/34.32) and Investors Intelligence Bear/Bull Ratio at 16.5/52.6 (contrary indicator) saw little change leaving the AAII neutral and the II bearish.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping $205.24 for the SPX. As such, the SPX forward multiple is 21.6 with the “rule of 20” finding fair value at approximately18.7.
• The SPX forward earnings yield is 4.63%.
• The 10-year Treasury yield closed at 1.29 and just shy of what we see as resistance at 1.3%. We view support as 1.13%. We will now monitor the 10 -year yield more closely for a possible violation of resistance

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In conclusion, Friday’s action left the charts and data at levels that suggest we maintain our current “neutral/positive” macro-outlook for equities intact.

SPX: 4,389/NA DJI: 34,862/NA COMPQX: 14,585/NA NDX: 14,868/NA

DJT: 14,243/14,701 MID: 2,667/2,729 RTY: 2,190/2,280 VALUA: 9,415/9,704

Written By: Guy S. Ortmann, CMT