Charts See Multiple Improvements

Data Remains Mostly Neutral

All of the major equity indexes closed higher yesterday with positive internals on stronger trading volumes from the prior session. The charts saw multiple technical improvements noted below while the data remains mostly neutral. However, valuation metrics have narrowed while several stochastic levels are now overbought. As such, they are tempering our enthusiasm to some degree. As well, we find it hard to believe the recent volatility resulting from trade war headlines has left the scene. So given the overview of the issues noted above, we are only altering our near term outlook from “neutral/negative” to “neutral”.

On the charts, all of the indexes closed higher yesterday with positive internals and higher trading volumes.

• Several chart improvements were achieved as noted. The SPX (page 2), COMPQX (page 3), NDX (page 3) DJT (page 4) and RTY (page 5) closed above their respective resistance levels while the MID (page 4), RTY and VALUA (page 5) managed to close above their near term downtrend lines.
• As well, the DJT and RTY moved back above their 50 DMAs.
• So we now find the SPX, COMPQX and NDX in short term uptrends while the rest are neutral.
• However, as a result of those achievements, the stochastic levels for the SPX, DJI, COMPQX and NDX are now overbought. As noted in the past, said overbought conditions can exist for extended periods. Nonetheless, they do imply a lift in near term risk potential.
• High “volume at price” (VAP) levels are supportive on the DJI, COMPQX and NDX while resistant on all others.
• The cumulative advance/decline lines are positive on the All Exchange, NYSE and NASDAQ.

The data remains neutral including all of the 1-day McClellan OB/OS Oscillators (All Exchange:+25.66 NYSE:+19.53 NASDAQ:+34.15).

• The detrended Rydex Ratio (contrary indicator) has turned bullish at -2.27 suggesting a more cautious crowd outlook.
• The % of SPX stocks trading above their 50 DMAs is a neutral 63.4%.
• Yesterday’s AAII Bear/Bull Ratio (contrary indicators) also turned bullish at 38.67/23.33, echoing the Rydex data.
• However, the Investor’s Intelligence Bear/Bull Ratio (contrary indicator) remained bearish at 17.2/47.6 suggesting an excess of bullish sentiment on the part of investment advisors continues.
• The Open Insider Buy/Sell Ratio is neutral at 54.4.
• Valuation seems appealing, but a bit less so, with forward 12-month earnings estimates for the SPX dipping to $174.35 via Bloomberg, leaving the forward p/e at a 17.2 multiple while the “rule of twenty” finds fair value at 18.2.
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• The 10-Year Treasury yield stands at 1.77%.
• The earnings yield is 5.82%.

In conclusion, while the charts and sentiment data have taken on a more positive tone, some cautionary stochastic levels combined with the outlier of possible negative trade war headlines that have been reoccurring result in our shifting our near term outlook only to “neutral” from “neutral/negative”.

Written By: Guy S. Ortmann, CMT