Indexes: All But The Dow Jones Transports In Near-Term Positive Trends

Charts Unchanged After Weak Close

McClellan 1-Day OB/OS Back to Mostly Neutral

The major equity indexes closed mostly lower yesterday with two exceptions. Most closed at or near their intraday lows with negative internals on the NYSE and NASDAQ. However, the weak session did not impact the charts regarding near-term trends or support levels, leaving all but one in near-term uptrends.

Meanwhile, the data finds most of the 1-day McClellan OB/OS Oscillators back in neutral territory after being overbought which suggested a likely pause post the recent sizable market rally.

So, with the charts generally positive while the data is a bit mixed, we are keeping our near-term “neutral/positive” macro-outlook for equities in place, although some further consolidation of recent gains would not be unusual.

On the charts, the indexes closed mostly lower yesterday with the exceptions of the DJI and DJT posting gains.

• In fact, the DJI managed to close above its near-term resistance level.
• Internals were negative on the NYSE and NASDAQ as trading volumes declined from the prior session.
• Yet, despite the weak session, none of the indexes saw violations of trend or support levels, leaving all but the DJT in near-term positive trends.
• While the day’s internals were weak, they did not impact the cumulative advance/decline lines for the All Exchange, NYSE, and NASDAQ that remain positive but below their 50 DMAs.
• All the stochastic levels are overbought but have not yet generated bearish crossover signals.

Looking at the data, the McClellan 1-Day OB/OS Oscillators dropped back to neutral from overbought on the All Exchange and NASDAQ while the NYSE’s remains overbought (All Exchange: +45.53 NYSE: +63.76 NASDAQ: +26.02). Their prior overbought condition, noted in yesterday’s note, suggested the potential for some pause in the markets.

• The % of SPX issues trading above their 50 DMAs rose to 69% and remains neutral.
• The Open Insider Buy/Sell Ratio dipped to 50.8 but also remains neutral.
• The detrended Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders was unchanged and remains bearish at 1.09.
• This week’s contrarian AAII Bear/Bull Ratio dipped to 1.23 but remains bullish as the crowd remains nervous and unwilling to embrace recent market strength. But the Investors Intelligence Bear/Bull Ratio (24.4/55.0) (contrary indicator) did a total flip flop from the prior week as bulls now outweigh bears, yet remains neutral.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg dipping slightly to $216.14 for the SPX. As such, the SPX forward multiple moved up to 22.1 with the “rule of 20” still finding fair value at approximately 18.5.
• The SPX forward earnings yield is 4.52%.
• The 10-year Treasury yield was flat at 1.48%. We view support at 1.38% and resistance at 1.58%.

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In conclusion, we remain “neutral/positive” in our near-term macro-outlook for equities while the charts and data suggest some potential remains for further consolidation of the recent market rally. We view such consolidation as not unusual and likely healthy for the longer term.

SPX: 4,694/NA DJI: 35,960/NA COMPQX: 15,510/15,983 NDX: 16,300/16,607

DJT: 15,983/16,524 MID: 2,777/2,866 RTY: 2,200/2,250 VALUA: 9,678/9,972

Written By: Guy S. Ortmann, CMT