Indexes Close Mixed Again; Market Breadth Weakens Slightly

The major equity indexes closed mixed again on Tuesday with negative internals on the NYSE while the NASDAQ saw negative breadth, but positive up/down volume as it did in the previous session.

The action suggests, in our opinion, that the equity markets are becoming more selective regarding those able to advance in price. The charts saw a combination of positive and negative events, leaving them in a mix of bullish and neutral near-term trends.

Meanwhile, market breadth saw some deterioration as the cumulative advance/decline lines turned neutral from bullish. The data remains generally neutral, including the 1-Day McClellan OB/OS Oscillators. As such, while we believe a more selective environment is at hand, we are maintaining our near-term “neutral/positive” macro-outlook for equities.

On the charts, the major equity indexes closed mixed Tuesday.

• The NYSE had negative internals on lighter volume while the NASDAQ saw negative breadth but positive up/down volumes as overall volume rose. The action, as noted above, suggests a more selective environment now exits, in our opinion.
• On the plus side, the charts saw SPX, DJI, COMPQX, NDX and DJT post gains with the SPX, COMPQX and NDX making new closing highs.
• The MID, RTY and VALUA closed lower with the RTY closing below its near-term uptrend line and is now neutral as are the DJT, MID and VALUA with the rest in near-term uptrends.
• Market breadth deteriorated slightly with the cumulative advance/decline lines for the All Exchange, NYSE and NASDAQ turning neutral form positive but remaining above their 50 DMAs.
• No stochastic signals were generated.

The data finds the McClellan 1-Day OB/OS Oscillators still neutral and not yet threatening, in our opinion (All Exchange: -13.46 NYSE: -29.23 NASDAQ: -0.29).

• The Rydex Ratio (contrarian indicator) measuring the action of the leveraged ETF traders was unchanged at 1.21 and remains in bearish territory.
• This week’s contrarian AAII bear/bull ratio (23.4/40.57) was little changed and remains mildly bearish while the Investors Intelligence Bear/Bull Ratio (contrary indicator) saw a drop in bears and rise in bulls at a bearish 15.8/56.5.
• The Open Insider Buy/Sell Ratio dropped to 25.9 but remains neutral.
• Valuation finds the forward 12-month consensus earnings estimate from Bloomberg rising to $192.53 for the SPX. As a result, the SPX forward multiple stands at 22.3 with the “rule of 20” finding fair value at approximately18.5.
• The SPX forward earnings yield is 4.49%.
• The 10-year Treasury yield closed at 1.48. We view support at 1.4% and resistance at 1.55%. The 10-year yield remains in a downtrend from its March peak that we view as a positive for equities in general.

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In conclusion, we have yet to see enough of a shift in the weight of the evidence to alter our near-term “neutral/positive” macro-outlook for equities, although the environment has become more selective.

SPX: 4,220/NA DJI: 33,174/34,248 COMPQX: 13,910/NA

NDX: 13,974/NA DJT: 14,602/15,181 MID: 2,614/2,713

RTY: 2,290/2,350 VALUA: 9,536/9,807

Written By: Guy S. Ortmann, CMT