Early Strength Yields Mostly Losses Yesterday

The majority of the major equity indexes closed lower yesterday as early session strength dissipated throughout the session as several closed at or near their intraday lows with losses. While market internals were slightly positive, selling pressure near the end of the session was strong enough to keep the sellers in control. The index charts did not see any technical events of import generated. Nonetheless, all remain in near-term downtrends and below their 50 DMAs. The data remains largely neutral, including most of the McClellan OB/OS Oscillators while market breadth has yet to show any notable improvement from its current weak condition. Thus, while we once again see the futures suggesting a strong open this morning, we are maintaining our near-term “neutral/negative” macro-outlook for equities as our disciple has yet to see evidence of bottoming signals being generated.

On the charts, the major equity indexes closed mostly lower yesterday with slightly positive internals on the NYSE and NASDAQ as trading volumes dropped from those of the previous negative session.

• Only the COMPQX (page 3), NDX (page 3) and RTY (page 5) managed to end in the green as the rest declined as the strong market opening succumbed to selling pressure throughout the session.
• No technical events of import were generated, leaving each of the indexes in near-term downtrend and below their 50 DMNAs.
• The slightly positive tilt in the session’s market internals was insufficient to alter the current downtrends for the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ as they also remain below their 50 DMAs.
• We have yet to see what we would consider to be bottoming signals among the charts and A/Ds.
• No stochastic signals were generated.

The data finds the McClellan 1-Day OB/OS Oscillators now finds only the NYSE oversold with the rest back to neutral (All Exchange: -40.75 NYSE: -58.19 NASDAQ: -28.9).

• The Rydex Ratio (contrarian indicator page 8) measuring the action of the leveraged ETF traders dipped to 1.04 and is now mildly bearish as the ETF traders have eased up on their leveraged long exposure to some degree.
• The Open Insider Buy/Sell Ratio dipped to 37.4 and remains neutral.
• This week’s contrarian AAII Bear/Bull Ratio (33.27/34.9) and Investors Intelligence Bear/Bull Ratio (22.1/50.0) (contrary indicator page 9) both saw a rise in bears and dip in bulls but remain neutral.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg lifting slightly to $206.85 for the SPX. As such, the SPX forward multiple is 21.0 with the “rule of 20” finding fair value at approximately18.7.
• The SPX forward earnings yield is 4.75%.
• The 10-year Treasury yield rose to 1.32% and remains within its current trading range with resistance at 1.4% and support at 1.23%.

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In conclusion, yesterday’s optimistic start ended in a whimper as selling pressure remained largely dominant. With the charts and data lacking any important signs of a near-term bottom being established via our discipline, we are forced to maintain our near-term “neutral/negative” macro-outlook for equities until enough evidence is gathered to suggest otherwise.

SPX: 4,310/4,444

DJI: 33,598/34,745

COMPQX: 14,554/15,013

NDX: 14,836/15,379

DJT: 13,930/14,364

MID: 2,600/2,685

RTY: 2,130/2,200

VALUA: 9,225/9,507

Written By: Guy S. Ortmann, CMT