High VAP Levels May Have Influence

Data Remains Mixed (Neutral & Positive)

The indexes closed mostly lower Tuesday, with two exceptions, on lighter trading volumes. Internals were mixed on the NYSE and negative on the NASDAQ. No important technical vents were registered on the charts, leaving them in a mix of positive and neutral short term trends, although some high “volume at price” (VAP) levels may have near term influence. The data remains a mix of neutral and positive readings with improvement in one of the contrary indicator psychology data points. As such, we are maintaining our near term “neutral/positive” outlook for the major equity indexes at this time.

On the charts, the indexes closed mixed yesterday with the NDX (page 3) and MID (page 4) posting minor gains as the rest declined. Trading volumes declined with negative NASDAQ internals as the NYSE saw negative breadth but positive up/down volume.

• No technical events of import were generated leaving the SPX (page 2), DJI (page 2) and MID in near term uptrends with the rest neutral.
• The cumulative advance/decline lines for the All Exchange, NYSE and NASDA dipped but remain positive.
• In our opinion, some high “volume at price” (VAP) levels may have the greater influence over the near term in some cases. Both the SPX and VALUA (page 5) are at high VAP levels (horizontal red/green bar) that may prove to be levels requiring multiple attempts to be overcome while the NDX (page 3) is above its VAP, suggesting significant price support.

The data is mostly neutral.

• The 1 day McClellan OB/OS Oscillators remain neutral (All Exchange:+28.84 NYSE:+40.58 NASDAQ:+18.26).
• The Open Insider Buy/Sell Ratio (56.5) and the % of SPX stocks above their 50 DMAs (54.7) are neutral as well.
• Psychology has actually improved further with yesterday’s AAII Bear/Bull Ratio (contrary indicator) seeing an increase in bearish sentiment in the face of the rally to 39.33/23.33. We view this lack of enthusiasm on the part of the crowd as a positive.
• The detrended Rydex Ratio (contrary indicator) at –1.35 also shows the leveraged ETF traders heavily short as they remain nonbelievers of recent strength.
• The 12 month forward consensus earnings estimate from Bloomberg for the SPX is $171.04, leaving the forward p/e at a 16.9 multiple while the “rule of twenty” finds fair value at 17.9 suggesting the SPX is slightly undervalued. This is based on the assumption that said estimates will hold. The shift in valuation has largely been due to the notable drop in the 10 Year Treasury yield to 2.14%. The earnings yield stands at 5.93%.

In conclusion, given the state of the charts, data and valuation, we are maintaining our near term “neutral/positive” outlook for the major equity indexes.

• SPX: 2,729/2,827
• DJI: 24,681/25,647
• Nasdaq: 7,611/7,837
• NDX: 7,280/7,510
• DJT: 9,820/10,286
• MID: 1,823/1,883
• Russell: 1,445/1,506
• VALUA: 5,797/6,013

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Written By: Guy S. Ortmann, CMT