Charts And Data See A Bit More Improvement

Most Data Remains Neutral

All the major equity indexes closed higher Wednesday with positive internals on the NYSE and NASDAQ as trading volumes declined from the prior session on both exchanges. The charts saw some further improvement with a combination of new closing highs and some violations of resistance.

Market breadth saw some further improvement as well.

Regarding the data, it continues to send a generally neutral near-term message. As such, while we expect the pace of recent progress to moderate, we are maintaining our near-term “neutral/positive” macro-outlook for equities.

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On the charts, all the major equity indexes closed higher yesterday with positive internals on the NYSE and NASDAQ as trading volumes declined on both exchanges.

• Positive technical events were registered for the SPX, COMPQX, and NDX as they closed at new all-time highs.
• As well, both the MID and VALUA closed above their near-term resistance levels. As stated recently I n our comments, we believe the action in the MID and VALUA display an improvement in market breadth while the MID is getting very close to what we suspect may be an important technical breakout level.
• However, the DJI closed below its near-term uptrend line and is now neutral with all the other indexes in near-term uptrends.
• While not an issue at the moment, we would note the stochastic levels for the SPX, COMPQX and NDX are in the mid-90’s and overbought. We will monitor them for any potential cautionary signals.

The data remains mostly neutral.

• The McClellan 1-Day OB/OS Oscillators remain in neutral territory and are not yet at threatening levels, in our opinion (All Exchange: +32.33 NYSE: +23.51 NASDAQ: +39.28).
• The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders remains neutral and unchanged at 0.71 as is the Open Insider Buy/Sell Ratio 46.0.
• This week’s contrarian AAII bear/bull ratio (32.77/35.43) and Investors Intelligence Bear/Bull Ratio at 18.5/51.1 (contrary indicator) both saw a rise in bears and dip in bulls and remain neutral and negative respectfully as their enthusiasm waned.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting to $206.56 for the SPX. As such, the SPX forward multiple is 21.8 with the “rule of 20” finding fair value at approximately18.7.
• The SPX forward earnings yield is 4.59%.
• The 10-year Treasury yield lifted to 1.34%. We view resistance as 1.4% with support at 1.23%. We reiterate the recent shift of the 10-year yield into a higher trading range could cause some issues for the markets.

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In conclusion, no evidence was presented yesterday that would suggest a change in our current “{neutral/positive” macro-outlook for equities would be warranted.

SPX: 4,440/NA DJI: 35,000/35,495 COMPQX: 14,800/NA NDX: 15,094/NA

DJT: 14,582/14,820 MID: 2,699/2,754 RTY: 2,200/2,260 VALUA: 9,485/9,708

Source for all charts below: Worden.

S&P 500 Daily Chart

Dow Jones Industrials

NASDAQ Composite

NASDAQ 100

Dow Jones Transports

S&P Midcap 400

Russell 2000

Written By: Guy S. Ortmann, CMT